Acct 102 Chap 3

Acct 102 Chap 3 - costs Margin of Safety is the number of...

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Acct 102 – Chap 3 The Break-even point is the volume of sales where total costs equal total revenue. Formula: The breakeven point in units = Fixed Expenses/Contribution Margin per unit The breakeven point in sales dollars = Fixed Expenses/Contribution Margin Ratio Example: Evan Company produces product X. The selling price is \$20 and the variable costs per unit are \$15. The company’s fixed expenses are \$100,000. Calculate the breakeven point in a) units, and b) sales dollars. 1 Fixed Expenses/CM per unit = \$100,000/(20-15) = \$20,000 units 2 Fixed Expenses/CM ratio = \$100,000/(5/20) = \$400,000 Sales Price minus variable cost per unit equals Contribution Margin per Unit . The quotient of dividing the contribution margin per unit by the sales price is the Contribution Margin Ratio. CVP analysis shows the interrelationships among sales prices, volume, fixed, and variable
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Unformatted text preview: costs. Margin of Safety is the number of units, or the amount of sales dollars, by which budgeted sales exceed breakeven sales. Sensitivity Analysis is a spreadsheet tool used to answer “what if” questions to assess the sensitivity of profits to simultaneous changes in fixed cost, variable cost, and sales volume. Target pricing strategy focuses on the development of a product with a cost structure that will satisfy market demands. The Equation Method is a technique that uses basic mathematic relationships to help analyze cost-volume-profit relationships. Formulas to Review The breakeven point in units = Fixed Expenses/Contribution Margin per unit The breakeven point in sales dollars = Fixed Expenses/Contribution Margin Ratio Contribution Margin Ratio = Contribution margin/ Sales price Margin of Safety = Budgeted Sales – Breakeven Sales/Budgeted Sales...
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