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Unformatted text preview: margin, as follows:
px - bx
= a + bx
a ÷ (p-b) ____________________________________________________________________________________________________________
David W. Young • Management Accounting for Managers • Chapter 2
Page 32 Copyrighted Material. Do not reproduce without written permission.
In effect, price minus unit variable cost tells us how much each unit sold contributes to the recovery of fixed
costs. When we divide this amount into fixed costs, we arrive at the volume (number of units of activity) needed to
recover all our fixed costs, which is our breakeven volume.
To illustrate, the Littleton News has a unit contribution margin of $1.00 ($1.80 - $.80). When we divide this
amount into its fixed costs of $100,000, we arrive at its breakeven volume of 100,000 magazines.
Incorporating Other Variables into a CVP Analysis
Thus far, we have been using CVP analysis to solve only for the breakeven volume. Clearly, if we knew how
many units of our product we were likely to sell, our fixed costs, and our unit variable costs, we could then determine the price we would need to charge to breakeven. Similarly, if we were in an...
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- Spring '14