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FINC 577 Chapter 5 Notes Outline

Vargos cvp income statement assuming 1001 units sold

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Unformatted text preview: statement, assuming 1001 units sold is: Chapter 5-29 Contribution Margin Ratio Shows the percentage of each sales dollar available to apply toward fixed costs and profits. The contribution margin ratio is the contribution margin per The unit divided by the unit selling price. For Vargo Company, the he computation is: In this case, the contribution margin ratio of 40% means that \$ 0.40 of each sales dollar is available to apply to fixed costs and contribute to net income. Chapter 5-30 Contribution Contribution Margin Ratio As shown below, the contribution margin ratio helps to determine the effect of changes in sales on on net income. Chapter 5-31 BreakBreak-Even Analysis A key relationship in CVP analysis is the level of activity at which total revenue equals total costs (both fixed and variable). This level of activity is called the break-even point. At this volume of sales, the company will realize no income, but will also suffer no loss. Can be computed or derived: from a ____________________, or by using ____________________or from a cost-volume profit __________. The break-even point can...
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