Chapter 3 Notes.docx - Chapter 3 Notes SP = Selling Price...

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Chapter 3 Notes SP = Selling Price CM = Contribution Margin OI = Operating Income NI = Net Income VC = Variable Cost FC = Fixed Costs Qty = Quantity B/E = Breakeven Contribution Margin Income Statement Selling Price (SP) x Quantity = Revenue Minus Variable Cost per unit x Quantity = Variable Cost Contribution Margin Minus Fixed Costs Operating Income Before Tax Minus Income Tax Net Income Break Even = profit of 0 [(SP x Qty) – (VC x Qty) – FC = 0] - B/E units = (Fixed Cost)/Contribution Margin per unit - B/E dollars = B/E units x Selling Price or (Fixed Cost + Operating Income)/Contribution Margin ratio Target Net Income = Operating Income x (1-tax rate) Target Operating Income = target net income/(1-tax rate) Contribution Margin Ratio = CM/Selling Price Selling Price = OI + FC = CM, CM/units sold = CM per unit + VC = SP Breakeven in units if # is 3.67 would be 4 (can’t sell a 3.67 tables) Margin of Safety – how much can sales go down without experiencing a loss
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