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# Chapter 6 - Cost-Volume-Profit Analysis(CVP Review the...

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Cost-Volume-Profit Analysis (CVP)

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Review the Total Cost Formula Total Cost = Total Variable Cost + Total Fixed Cost That is, Total Cost = variable cost/u* (units) + Fixed Cost
Review the Contribution Margin Income Statement Accounts Per Unit # Units Total \$ % Sales Price * # units sold = Total Sales 100% Less: variable costs vc/u * # units sold = Total VC (vc/u /price) Contribution Margin cm/u * # units sold = Total CM (cm/u/price) Less: fixed costs (one total #) Net Income (before taxes) (one total #) Now, let's play with these two formulas. What if: Variable cost per unit changes? Number of Units change? Fixed costs change? Also, what if selling price changes? How does that effect contribution margin?

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Contribution Margin Ratio Contribution margin ratio is the contribution margin/sales % This percent is useful sometimes in calculating number of units sold or total contribution margin.
Break-even Point Break-even uses the same formulas as the contribution margin income statement above, but in break-even calculations, net income is always zero.

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Chapter 6 - Cost-Volume-Profit Analysis(CVP Review the...

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