managerial acounting chapter 4.docx

managerial acounting chapter 4.docx - Important Formulas 1...

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Important Formulas: 1. Contribution Margin Sales – Variable costs (VC) = Contribution Margin (CM) 2. Contribution Margin Ratio CM / Sales = CM ratio 3. Breakeven point – where net income is zero Total Revenues - Total Costs Zero Profit How to calculate Break Even (BE): BE in units = Total Fixed Costs / Contribution Margin per unit BE in sales dollars = BE in units * Selling Price per unit See examples on Chapter 4 PowerPoints and in the practice problems. 4. Contribution Margin Sales - V.C. (includes Variable Product costs & Variable Selling / Administrative)
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CM - F.C. (Fixed MOH & Fixed Selling / Administrative) Net Income 5. Determine how many units to sell to get a targeted profit (or net income). If you company desires a certain net income, you can adjust the BE formula to follows: (Total Fixed Costs + Desired Net Income) / CM per unit = units to sell to get desired profit. 6. Cost – Volume – Profit Graph Assume the following information: Max number of units you can sell is 100 at $10 each (sells would be $1,000 total) Variable cost is $3 per unit Fixed costs are $300 Therefore, if you sold all 100 units, total costs would be: F.C. $300
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