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UNIT 20 study guide - current sales volume 3 CALCULATE 4...

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UNIT 20 1) Contribution per unit = Selling price per unit – Variable cost per unit CONFUSED 2) Break even point = total fixed costs/ unit price- variable cost per unit (aka contribution per unit) 3) Target profit volume (units)= total fixed costs + desired profit/ contribution per unit UNIT 20B 1) UNIT PRICE= total fixed costs + desired profit/ volume in units + variable cost per unit 2) Contribution margin a. Total revenue – total variable cost b. Total variable cost is variable cost per unit X units (volume) Operating leverage a. Contribution margin / net income b. Operating Leverage tells you how a change in revenue will affect Net Profit. c. The change in revenue can be in dollars, or it can be a percentage from the
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Unformatted text preview: current sales volume. 3) CALCULATE 4) Cost Structure and its effect on profit as volume changes: a. •High Variable Costs as a percentage of Sales a.i. Low Contribution Margin a.ii. •Low Operating Leverage a.iii. •As sales volume changes, profit changes slowly b. •Low Variable Costs as a percentage of Sales b.i. •High Contribution Margin b.ii. •High Operating Leverage b.iii. •As sales volume changes, profit changes very quickly-Low Variable Cost per unit and a High Fixed Cost structure: High Leverage High Variable Cost per unit and a Low Fixed Cost structure: Low Leverage...
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