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