Unformatted text preview: he proﬁt equation to
PART
answer Jamaal’s questions about volumes needed to break even or achieve a target proﬁt
by developing the formulas discussed here. We start with the answer to the ﬁrst question,
which we call ﬁnding a breakeven volume. Managers might want to know the breakeven
volume expressed either in units or in sales dollars. If the company makes many products,
it is often much easier to think of volume in terms of sales dollars; if we are dealing with
only one product, it’s easier to work with units as the measure of volume.
breakeven point
Volume level at which proﬁts
equal zero. Orientation BreakEven Volume in Units We can use the proﬁt equation to ﬁnd the breakeven
point expressed in units:
Proﬁt 0 (P V )X F F
_______ (P V )
Preparing and Organizing Yourself
Fixed costs
for _____________________
Breakeven volume (in units) Success in College
Unit contribution margin
If Proﬁt 0, then X $1,500
$ .24
6,250 prints
To show this is correct, if UDevelop processes 6,250 prints, its operating proﬁt is
Proﬁt TR TC PX VX ($.60 F 6,250 prints) ($.36 CHAPTERS $0 contribution margin
ratio
Contribution margin as a
percentage of sales revenue. 6,250 prints) $1,500
IN PART ONE BreakEven Volume in Sales Dollars 1 To MakingbreakevenSuccessfulterms of sales
ﬁnd the Yourself volume in in College
dollars, we ﬁrst deﬁne a new term, contribution margin ratio. The contribution margin ratio is the contribution margin as a percentage of sales revenue. For example, for
2 Approaching as follows:
UDevelop, the contribution margin ratio can be computed College Reading and Developing a CollegeLevel Vocabulary
Unit contribution margin Contribution margin ratio 3 _____________________ Sales price per unit Approaching College Assignments:
$.24
____
Reading Textbooks and Following Directions
$.60
.40 (or 40%) Using the contribution margin ratio, the formula to ﬁnd the breakeven volume
follows:2
Breakeven volume sales dollars 2 Fixed costs
_____________________
Contribution margin ratio We can derive the breakeven point for sales dollars from the original formula for units:
F
X ______
PV The modiﬁed formula for dollars multiplies both sides of the equation by P:
FP
PX ______
PV
Since multiplying the numerator by P is the same as dividing the denominator by P, we obtain:
F
PX _________
(P V ) P
V)/P is the contribution margin ratio.
cor50782_ch01_001072.indd The term (P
1 lan27114_ch03_080109.indd 84 ✓ Related Resources
See pages 000 to 000
of the Annotated Instructor’s
Edition for general suggestions related to the chapters
in Part One.
1 10/5/09 11:09:29 PM 10/22/09 10:33:53 PM REVISED PAGES Chapter 3 Fundamentals of CostVolumeProfit Analysis For UDevelop, the breakeven volume expressed in sales dollars is PART Breakeven sales dollars $1,500
______
.40
$3,750 1 85 Note that $3,750 of sales dollars translates into 6,250 prints at a price of $.60 each.
We get the same result whether expressed in units (6,250 prints) or dollars (sales o...
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 Spring '07
 MEJIAS
 Contribution Margin, CVP analysis

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