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Unformatted text preview: company aims to develop a product that is cheap enough to produce and make a profit at this price. This is also called product costing Changes in fixed / variable costs need to be adjusted for in the equation or contribution margin method Using the Cost-Volume-Profit Graph Horizontal axis is sales in units, vertical axis is dollars Draw fixed cost line, its flat at the level of total fixed costs Draw total cost line, it starts where fixed cost intersects vertical axis and increases at the rate of variable cost per units Draw the sales line, it starts at the origin, and increases at the rate of the sales price. Calculate the Margin of Safety It measures the cushion between budgeted sales and the break-even point. It tells a company how much their sales can drop without incurring a loss. Margin of Safety = (Budgeted Sales Break Even Sales) / (Budgeted Sales)...
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This note was uploaded on 05/31/2010 for the course ACCT 1237 taught by Professor Hillman during the Spring '10 term at Drake University .
- Spring '10
- Financial Accounting