Jan 28, 2008

# Jan 28, 2008 - 1 Decision Point – where...

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Key points from last class 1. CVP o Cost, volume, profit o Have to be able to separate Fixed vs. Variable cost Variable cost change in direct proportion to the sales volume 2. Breakeven o Use - assessing risk, margin of safety o Method of calculating Chart Algebraic method : TR=TC Concept of Contribution Contribution margin - with units (P-VC) 3. Finance – Review o What is Contribution The amount that remains from the sale after VARIABLE Costs are  covered, which contributes toward covering FIXED Costs o Contribution margin = price/(unit - variable cost/unit) o Margin of Safety: Current Sales – Breakeven o Unit Contribution Margin = Price – VC o Fixed Cost/Unit Contribution Margin = units required to sell in order to  cover fixed costs Lecture Contribution margin

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Unformatted text preview: 1. Decision Point – where INCREMENTAL (additional) fixed costs are covered by INCREMENTAL contribution 2. “What is left over after covering variable costs that contributes toward covering fixed costs?” 3. Use ratio – can’t do it on a per unit basis o What % of every sales dollar is left over after covering variable costs that contributes toward covering fixed costs? 4. Analysis o Qualitative o Quantitative (Contribution) Contribution rate 5. When there are only total value given 6. Contribution rate = 1-VC/Sales 7. What do our total \$ Sales have to be at contribution rate of 1- (VC/Sales) to cover fixed costs? 8. Margin = FC/(Contribution Rate) = FC/(1- VC/Sales)...
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Jan 28, 2008 - 1 Decision Point – where...

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