Assignment # 7 Chapter # 3 definition and Problem # 3-16

Assignment # 7 Chapter # 3 definition and Problem # 3-16 -...

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Naiya Amin ACCT 3240*01WC Assignment # 7 Chapter # 3 Definition October 28 th 2010 1. Breakeven Point (BEP): breakeven point is the quantity of output sold at which total revenues equal total costs – that is the quantity of output sold that results in $0 of operating income. Managers are interested in the breakeven point because they want to avoid operating losses. The breakeven point tells them how much output they must sell to avoid a loss. The equation to find the breakeven number of units is: Breakeven number of units = fixed costs/contribution margin per unit. 2. Contribution income statement: contribution income statement is basically a income statement that groups costs into variable costs and fixed costs to highlight contribution margin. 3. Contribution margin: the difference between total revenues and total variable costs is called contribution margin. Contribution margin indicates why operating income changes as the number of units sold changes. 4. Contribution margin percentage: contribution margin percentage equals contribution
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