Supplementary Notes re Chapter 5

Supplementary Notes re Chapter 5 - Supplementary Notes re...

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Supplementary Notes re Chapter 6: Cost-Volume Profit Cost/Volume/Profit Analysis 1 . Sales Required to Earn a Target Income Most businesses are not interested in simply breaking even-----they want to earn a “target” income and wish to know what level of sales would be required to earn the target income. This can be done by slightly modifying the formulas or equations. CM formula Method : Target Sales in units = TFC + Target Income CM per unit Target Sales in $ = TFC + Target Income CM% Equation Method: S - TVC - TFC = Target NI State TVC in terms of a % of S and solve for S or, SP(x) - VC/unit(x) - TFC = Target NI Solve for x You can use this second equation to also solve for SP, VC/unit, or TFC provided you are given all the other parameters. Example E5-7 part (c) 2. Margin of Safety (MS) The margin of safety indicates the sales cushion you have in sales $ before you reach the BE pt. It is calculated as follows: MS = Actual Sales - Breakeven pt. Sales It can also be stated as a %, called the MS %
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Supplementary Notes re Chapter 5 - Supplementary Notes re...

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