Managerial Accounting

Margin of Safety ($$)

Actual minus Break Even equals a number, then that number divided by Actual equals the Margin of Safety percentage

Margin of Safety (Units Sold)

Actual minus Break Even equals a number, then that number divided by Actual equals the Margin of Safety percentage

CVP Analysis

An approach that allows managers to see how a change in one or more of the following factors will impact profitability

Contribution Margin Ratio

Contribution Margin divided by Sales Revenue

Degree of Operating Leverage

Contribution Margin divided by profit

Profit Equation

Profit equals Total revenue minus Total cost; or Profit equals (Unit price times Quantity sold) minus (Fixed cost plus Variable cost).

Contribution Margin

Sales Revenue minus Variable Costs

Break Even Sales Equation

Total Fixed Costs divided by Unit Contribution Margin Ratio

Break Even Units Equation

Total Fixed Costs divided by unit Contribution Margin

Target Profit Analysis Units

Total Fixed Costs plus Target Profit didvided by Unit Contribution Margin

Target Profit Analysis Sales

Total Fixed Costs plus Target Profit didvided by Unit Contribution Margin Ratio

Contribution Margin

difference between the price the item is sold for and how much it costs to produce that item