This preview shows page 1. Sign up to view the full content.
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) =
Variable: $0.80 (100,000) =
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...
View Full Document
This document was uploaded on 03/30/2014.
- Spring '14