2 this amount included the salaries of the department

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Unformatted text preview: margin, as follows: px px - bx x (p-b) x = = = = a + bx a a 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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