Managerial Accounting Chapter 6

What is the formula for before-tax profit?

After-tax profit/(1- tax rate)

the level of sales at which the contribution margin just covers fixed costs and income is equal to zero.

Break Even Point

The fraction of sales in dollars that contributes to paying fixed costs and adding to profit.

Contribution Margin

What is the formula for contribution margin per unit?

Contribution Margin (in dollars)/ Units Sold

What type of income statement combines product/period costs, but separates by fixed/variable costs instead, focusing on cost behavior?

Contribution Margin Income Statement

What tells us that every unit sold adds $_______ to net income.

Contribution Margin per Unit

How is operating leverage calculated?

Contribution Margin/ net income

The relative proportion of fixed and variable costs in a company

Cost Structure

As the weighted-average contribution margin increases, the break-even point will ___________.

Decrease

When calculating target profit before tax, sales volume in units can be calculated by what formula?

Fixed Costs + Target Profit (before tax)/ contribution margin per unit

When calculating target profit before tax, sales volume in units for multiple products can be calculated by what formula?

Fixed Costs + Target Profit (before tax)/ weighted-average contribution margin per unit

What is the formula for calculating break even units for multiple products?

Fixed costs / Weighted average contribution margin per unit

What is the formula for calculating break even units?

Fixed costs/ contribution margin per unit

What is the formula for calculating break even sales ($)?

Fixed costs/ contribution margin ratio (%)

The measure of the proportion of fixed costs in a company's cost structure, used as an indicator of how sensitive profit is to changes in sales volume.

Operating Leverage

The net income of a company with a high operating leverage is (sensitive/not sensitive) to changes in sales.

Sensitive

What is contribution margin per unit?

The amount each unit's sale adds to "covering" fixed costs and then adding to profit.

What is the formula for calculating weighted average contribution margin per unit?

Total contribution margin for products A & B/ Total number of units sold A & B

t/f: For every dollar change in sales, contribution margin will increase (or decrease) by the contribution margin ratio multiplied by the increase (or decrease) in sales dollars.

True

When calculating break even with multiple products, what must be calculated/used?

Weighted Average Contribution Margin Per Unit

contribution magin ratio x change in dollar sales = change in ___________.

change in Income

contribution margin per unit x change in units sold = change in ____________.

change in income

What is the formula for contribution margin ratio?

contribution margin (in dollars/ sales (in dollars)

A company with high fixed costs compared to variable costs will have a ______________ operating leverage than a company with high variable costs and low fixed costs.

higher

What is the formula for determining the sales DOLLARS required to achieve a target profit before tax?

sales dollars= fixed costs + target profit before tax / contribution margin ratio

What is the formula for gross profit?

sales minus cost of goods sold

As a company gets closer and closer to the break even point, operating leverage will continue to increase, and income will be very __________ to changes in sales.

sensitive

What is contribution margin ratio?

the contribution margin divided by sales; used to calculate the change in contribution margin resulting in a dollar change in sales.