Managerial Acct Chapter 6

# Managerial Acct Chapter 6 - Chapter 6 Income statement...

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Chapter 6 Income statement using the contribution approach Income statement as prepared for financial reporting purpose (management) Revenue and expense information sometimes reformatted into what it is called a contribution income statement. Contribution income statement is arranged so as to emphasis contribution margin. The income statement shows the relation ship at one level of volume. It is therefore a vertical slice of the profit graph. ● The contribution income statement is useful because it reflects the overall economic characteristic of the business. An important tool used by organization is planning and controlling operations is cost volume profit analysis (CVP). Analysis allow the organization to determine how potential change in expected sales volume, selling price fixed cost and variable cost effect overall organization profitability. Contribution margin approach and breakeven point When the organizations revenue from the sale is equal the expanse this is called breakeven point. And to compute the breakeven point and contribution margin ratio we use the following formula. Fixed Expenses Breakeven point (in units) = ------------------------- Unit contribution margin (Sales price - Cost) Unit contribution margin ● Contribution margin ratio = ---------------------------- Unit Sales Price

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Fixed Expenses ● Breakeven point (In dollars) = --------------------------- Contribution Margin Ratio (Fixed expense) (%) ● New breakeven point = ----------------------------- Contribution ratio ● Equation approach (Income statement) Sales X Unit sales price xxxx Less variable expense X Variable expense for each unit. xxxx Contribution xxxx Less fixed expense xxxx ________________ Profit /Loss or breakeven point xxxx
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## This note was uploaded on 02/19/2010 for the course ACC 3330 taught by Professor Davis during the Spring '98 term at Texas A&M.

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Managerial Acct Chapter 6 - Chapter 6 Income statement...

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