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Unformatted text preview: • Answer: We can begin with the cost-volume-profit formula, and substitute the known elements. We then solve for the unknown, which, in this case, is volume, or x. Profit = px - (a + bx) At breakeven, Profit = 0; therefore, px = a + bx, or 1.80x = 100,000 + .80x 1.00x = 100,000 x = 100,000 Breakeven is 100,000 magazines. To confirm: Revenue: $1.80 (100,000) = Less: costs: Variable: $0.80 (100,000) = Fixed: Total Profit $180,000 80,000 100,000 180,000 $0 ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• Unit Contribution Margin An important element of CVP analysis is “unit contribution margin,” which is the difference between price and unit variable cost (p - b). This is the contribution to fixed costs that comes about as a result of each additional unit sold. By rearranging the terms of the CVP formula, we can arrive at the conclusion that breakeven volume is simply fixed costs divided by unit contribution...
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This document was uploaded on 03/30/2014.

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