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Chapter_4_Relationships

# Chapter_4_Relationships - 19 Units required to reach T.P...

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Chapter 4 Relationship Examples 1. Margin of Safety = Actual (Budgeted) Sales – BE Sales 2. @BE, Contr. Margin = Fixed Expense (which stay fixed for all levels) 3. @Actual Sales Level, C.M. = F.E. + Profit 4. C.M. Ratio = C.M. / Sales (same for all sales levels because variable) 5. C.M. per unit = C.M. / #units 6. C.M. per unit = Sales per unit – Var. Costs per unit 7. Selling commissions which are calculated as a % of sales are var. cost 8. C.M. Ratio = 1 – (total Variable Costs / Sales) 9. C.M. Ratio = 1 – (Var. Cost per unit / Sales per unit) 10. B.E. Sales(\$) = F.E. / C.M. Ratio OR = B.E. units x Selling Price per unit 11. B.E. units = F.E. / C.M. per unit 12. Sales per unit – Var. Costs per unit = C.M. per unit 13. Sales per unit = C.M. per unit + Var. Costs per unit 14. Sales = (Sales per unit) x (# of units) 15. Var. Costs = (Var. Costs per unit) x (# of units) 16. C.M. = (C.M. per unit) x (# of units) 17. Target Profit ~ same approach as B.E. calcs except C.M. = F.E. + T.P. 18. Units required to reach T.P. = (T.P. Sales) / (Sales per unit)

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Unformatted text preview: 19. Units required to reach T.P. = (T.P. Cont. Marg.) / (C.M. per unit) 20. Degree of Operating Leverage = (C.M.) / (Operating Income) 21. % increase in Operating Income = (% increase in sales) x (DoOL) 22. DoOL % = (DoOL) / (Sales) 23. Margin of Safety % = MoS Ratio = (MoS) / (Actual Sales) 24. B.E. Sales (\$) = (1 – MoS%) x (Actual Sales) 25. B.E. Sales (\$) = (1 – MoS%) x (Actual units times Sales per unit) 26. Operating Income = (MoS%) x (C.M.) 27. Operating Income = (MoS%) x (Sales) x (C.M. Ratio) 28. When multiple products are present, C.M., C.M. Ratio, etc must be computed by totaling amounts for each product for that product mix. (Product mix means the same as Sales mix for our purposes.) The calculations are only valid if that product mix (sales mix) remains the same. This creates a whole new list of relationships / cost behaviors based upon how product mix can effect C.M., C.M. Ratio, B.E., T.P., etc....
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Chapter_4_Relationships - 19 Units required to reach T.P...

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