Accounting Chapter 18

required sales in dollars equation

(fixed costs + target net income) / contribution margin ratio = required sales in dollars

required sales in units equation

(fixed costs + target net income) / unit contribution margin= required sales in units

changes in _____ are the only factors that affect costs

activity

margin of safety in dollars equation

actual (expected) sales - break even sales

target net income

an income objective set by managers

mixed costs

change in total but not proportionately with changes in activity level.

at break even point, _____ = fixed costs

contribution margin

fixed costs

costs that remain the same in total regardless of changes in the activity leel

variable costs

costs that vary in total directly and proportionately with changes in the activity level.

examples of fixed costs

depreciation, propety taxes, insurance and rent

examples of variable costs

direct materials; direct labor

break even point in units

fixed costs / unit contribution margin = bep units

break even point in dollars

fixed costs/ contribution margin ration = bep ratio

break even analysis

total revenue = total cost

fixed cost per unit cost vary ________ with activity.

inversely as volumes increases, unit cost ______ and vice versa

margin of safety

is the difference between actual or expected sales and sales at the break even point.

margin of safety ratio

margin of safety in dollars / actual (expected sales

target net income equation

required sales-variable costs- fixed costs= target net income

break even equation

required sales-variable costs-fixed costs=net income

CVP income statement equation

sales-variable cost= contribution margin CM-fixed costs=net income *for internal use only

variable costs remain the ____ at every level of activity

same per unit

CVP Analysis

the study of the effects of changes in coast and volume on a companys profit. critical factor in settling: selling prices, determining product mix and maximizing use of production facilities

contribution margin ratio

unit cost margin/unit selling price