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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 CostVolumeProfit 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 breakeven 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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 Spring '10
 Hillman
 Financial Accounting, Contribution Margin

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