Chapter 6
Profit Formula
(CM Ratio × Sales) − Fixed Expenses
unit sales to attain target profit formula
(Target Profit + Fixed Expenses) / Unit CM
Unit CM
(selling price per unit - variable expenses per unit)
sales volume (Number of item need to sell in order to achieve target profit)
(target profit + fixed cost)/ contribution margin
Break even sales for a multi item company
1. A=calculations of each sales (amount / total amount) 2. B= A*Percent of contribution margin 3. total fixed cost/ overall contribution margin(B)
Sales dollars to attain the target profit
= (target profit + fixed expenses) / CM ratio
A shift in the sales mix from high-margin items to low-margin items can cause total profit to ________.
decrease
percentage change in net operating income
degree of operating leverage x percentage change in sales
How many units to break even
fixed cost / (unit price - variable cost per unit)
Which of the following methods do managers use to estimate the fixed and variable components of mixed costs by analyzing past records of cost and activity data?
least-squares regression (accurate than the high-low method)
Margin of Safety
margin safety in dollars/ total budget
The measure of how sensitive net operating income is to a given percentage change in dollar sales is called _______.
operating leverage
`The following explains contribution margin ________.
sales minus variable cost
Net Operating Income
sold * (price-perunit-varable cost) - fixed expense
when using the high low method, the change in cost divided by the change in units equals
the variable cost per unit
Break-even point is the level of sales at which ______.
total revenue equals total costs
Variable expense ratio
total variable expenses / total sales
Once the break-even point has been reached, net operating income will increase by the amount of the _____ for each additional unit sold.
unit contribution margin
margin of safety in dollars formula
Actual (Expected) Sales - Break-Even Sales
variable costs
Change in cost ÷ Change in activity
Degree of Operating Leverage (DOL)
Contribution Margin / Net Operating Income
CM Ratio
Contribution margin(product selling - variable) / sales
Dollar sales to break even formula
Fixed Expenses / CM Ratio
Unit Sales to Break Even Formula
Fixed Expenses / CM ratio
margin of safety in units
Margin of Safety in Dollars / Selling Price
selling price per unit
Required profit per unit + variable cost per unit
Required profit per unit
Target profit / number of units
Contribution margin formula
cost per unit - variable cost