Exam 3 Study Guide

# Exam 3 Study Guide - Chapter 4 Traditional v Contribution...

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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 Break-even and Target Profit : For break-even 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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Exam 3 Study Guide - Chapter 4 Traditional v Contribution...

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