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# n05 - Chapter 6 Notes Page 1 Cost-Volume-Profit Analysis...

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Chapter 6 Notes Page 2 Please send comments and corrections to me at [email protected] This is the “Operating Income Approach” described in your book. If you move your Total Costs to the other side of the equation, you see that your Sales Revenue equals your Total Costs when you Break Even: Sales Revenue = Total Costs Now, solve for the number of units produced and sold (x) that satisfies this relationship: Revenue = Total Costs Px = Vx + F Px - Vx = F x(P - V) = F x = __F__ (FORMULA "A") (P -V) Formula "A" is the “Contribution Margin Approach” that is described in your book. You can see that both approaches are related and produce the same result. Break-Even Example Assume Bullock Net Co. is an Internet Service Provider. Bullock offers its customers various products and services related to the Internet. Bullock is considering selling router packages for its DSL customers. For this project, Bullock would have the following costs, revenues and tax rates: P = \$200 V = \$120 F = \$2,000 Tax Rate (t) = 40% Using Formula “A”, we can compute the Break-Even Point in units: x = 2,000 (200 - 120) x = 2,000 80 x = 25 units Sometimes, you see the (P-V) replaced by the term "Contribution Margin Per Unit" (CMU): x = __F__ (FORMULA "A") CMU
Chapter 6 Notes Page 3 Please send comments and corrections to me at [email protected] This is way that your textbook presents Formula “A”.

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n05 - Chapter 6 Notes Page 1 Cost-Volume-Profit Analysis...

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