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Chapter 4
Traditional v. Contribution Format Income Statement
:
Traditional:
Contribution Margin:
Sales
Sales
COGS
 Variable Costs
= Gross Margin
= Contribution Margin
 S, G, & A
Fixed Costs
Operating Income
Operating Income
Breakeven and Target Profit
:
•
For breakeven units: set equation equal to 0 > plug in known variables > solve
•
For target profit: set equation equal to desired profit > plug in known variables >
solve
•
Changing variables: Plug in changed variable (e.g. increase in fixed costs, change
in selling price, etc.) > keep other variables the same > solve
[(Sales Price * Units) – (Variable Cost per Unit * Units)] – Total Fixed Cost = Operating Income
[S(n) – V(n)] – Fixed = Operating Income
*Note
: There are alternative equations you can use; find what works best and makes
sense to you!
Contribution Margin
:
Dollar Value (per unit):
Ratio:
Sales
$CM
 Variable Costs
$Sales
= Contribution Margin
= %CM
 Divide by the number of units
 Remember %VC + %CM = 100%
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 Spring '08
 BREWER
 Managerial Accounting, Income Statement

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