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Unformatted text preview: he proﬁt equation to
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 break-even volume. Managers might want to know the break-even
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.
Volume level at which proﬁts
equal zero. Orientation Break-Even Volume in Units We can use the proﬁt equation to ﬁnd the break-even
point expressed in units:
Proﬁt 0 (P V )X F F
_______ (P V )
Preparing and Organizing Yourself
Break-even volume (in units) Success in College
Unit contribution margin
If Proﬁt 0, then X $1,500
To show this is correct, if U-Develop processes 6,250 prints, its operating proﬁt is
Proﬁt TR TC PX VX ($.60 F 6,250 prints) ($.36 CHAPTERS $0 contribution margin
Contribution margin as a
percentage of sales revenue. 6,250 prints) $1,500
IN PART ONE Break-Even Volume in Sales Dollars 1 To Makingbreak-evenSuccessfulterms 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:
U-Develop, the contribution margin ratio can be computed College Reading and Developing a College-Level Vocabulary
Unit contribution margin Contribution margin ratio 3 _____________________ Sales price per unit Approaching College Assignments:
Reading Textbooks and Following Directions
.40 (or 40%) Using the contribution margin ratio, the formula to ﬁnd the break-even volume
Break-even volume sales dollars 2 Fixed costs
Contribution margin ratio We can derive the break-even point for sales dollars from the original formula for units:
PV The modiﬁed formula for dollars multiplies both sides of the equation by P:
Since multiplying the numerator by P is the same as dividing the denominator by P, we obtain:
(P V ) P
V)/P is the contribution margin ratio.
cor50782_ch01_001-072.indd The term (P
1 lan27114_ch03_080-109.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 Cost-Volume-Profit Analysis For U-Develop, the break-even volume expressed in sales dollars is PART Break-even sales dollars $1,500
$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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This note was uploaded on 02/07/2014 for the course MIS 304 taught by Professor Mejias during the Spring '07 term at University of Arizona- Tucson.
- Spring '07