This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: Chapter 7: Student Summary Handout
1. Calculate the unit contribution margin (CM) and the contribution margin ratio.
a. Unit CM = unit sales price – unit variable costs
b. CM ratio = CM / unit sales price 2. Data assumptions in CVP analysis:
a. Change in volume is the only factor that affects costs
b. Costs can be classified as variable or fixed
c. Revenues are linear in the relevant range
d. Inventory levels will not change
e. Sales mix will not change 3. Use CVP to find breakeven (BE) points and target profit volumes.
a. BE is the point where revenues = expenses and net income is zero
b. BE point in units = fixed costs / CM per unit
c. BE point in sales revenue = fixed costs / CM ratio
d. Target profit volume in units = (fixed costs + target profit) / CM per unit
e. Target profit volume in sales revenue = (fixed costs + target profit) / CM ratio 4. Sensitivity analysis a. Changing the sales price
b. Changing variable costs
c. Changing fixed costs 5. Multiproduct companies
a. Changing the mix of products offered for sale
b. Finding BE in sales units
c. Finding BE in sales revenue 6. Information technology and sensitivity analysis
a. Excel
b. ERP 7. Measures of Risk
a. Margin of safety i. In units ii. In sales dollars iii. In percentage
b. Operating leverage i. Operating leverage factor
ii. Characteristics of high operating leverage firms
iii. Characteristics of low operating leverage firms ...
View
Full Document
 Fall '08
 Lui
 Managerial Accounting, target profit, CM ratio

Click to edit the document details