Week 5, LO 5 Demo

# Week 5, LO 5 Demo - Week 5 Week 5 Skill Building...

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Week 5 Week 5 Skill Building Demonstration Problem 5 Compute the break-even point in unit sales and dollar sales. Learning Objective 5 Break-Even Computations Earlier in the chapter we defined the break-even point as the level of sales at which the company’s profit is zero. The break-even point can be computed using either the equation method or the contribution margin method —the two methods are equivalent. Definitions Equation Method 1: The equation method translates the contribution format income statement illustrated earlier in the chapter into equation form as follows: . Profit =(Sales – variable expenses) – Fixed Expenses Rearranging this equation slightly yields the following equation, which is widely used in CVP analysis: Sales= Variable Expenses + Fixed Expenses + Profits At the break-even point, profits are zero. Therefore, the break- even point can be computed by finding the point where sales equal the total of the variable expenses plus the fixed expenses.

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