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FINC 577 Chapter 5 Notes Outline

The break even point can be expressed either in sales

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Unformatted text preview: be expressed either in sales units or in sales dollars. Chapter 5-32 BreakBreak-Even Analysis: Mathematical Equation Break-even occurs where total sales equal variable costs plus fixed costs; i.e., net income is zero. The The formula for the break-even point in units and the the computation for Vargo Video are: To find sales dollars required to break-even: sales break- 1,000 units × $500 = $500,000 (break-even sales dollars). (break- Chapter 5-33 BreakBreak-Even Analysis: Contribution Margin Technique At the break-even point, contribution margin must equal At total fixed costs. (Contribution Margin = Total revenues – Variable costs) The break-even point (BEP) can be computed using either contribution margin per unit or contribution margin ratio. Chapter 5-34 Contribution Contribution Margin Technique When the contribution margin per unit is used, the formula to compute the BEP in units for Vargo Video is: When the BEP in dollars is desired, contribution margin ratio is used in the following formula for Vargo Video: Chapter 5-35 BreakBreak-Even Analysis: Graphic Presentation A cost-volume profit (CVP) graph shows the relationships between costs, volume and profits. To construct a CVP graph: Plot t...
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