B2 Profitability & Pricing

Question 1

Absorption Approach

Answer 1

Product Cost
COGS=DM+DL+MOH (fixed & variable)

Period Cost
Variable SG&A

Question 2

Contribution Approach (Variable costing)

Answer 2

Product Cost
COGS=DM+DL+ Variable OH

Period cost
Fixed MOH
Variable SG&A

Question 3

Breakeven Computation

Answer 3

Sales - VC - FC = Profit

Sales - VC = Contribution Margin

Question 4

Breakeven Point in Units

Answer 4

Total Fixed Cost / Contribution Margin per Unit

Total FC in $ not on a per unit basis

Question 5

Breakeven Point in Dollars

Answer 5

1. Contribution margin per unit

Unit price x Break point (units)

2. Contribution margin ratio

Total fixed costs/ contribution margin ratio

CM ratio = CM / Sales

Question 6

Profit Performance

Sales units needed to obtain desired profit

Answer 6

Sales (units) = (FC + Pretax profit) / CM per unit

Question 7

Profit Performance

Sales dollars needed to obtain desired profit

Answer 7

Sales dollars = VC + FC + Pretax profit

Sales = FC + Pretax profit / CM ratio

Question 8

Predicting profit based on volume

Answer 8

Profit = Units above BE x CM per unit

Question 9

Setting selling price based on assumed volume

Answer 9

Sale price per unit = (FC+VC+Pretax Profit) / Number of units sold

Question 10

Margin of safety

Sales Dollars

Answer 10

Total sales ($) - BE Sales ($) = Margin of safety ($)

Question 11

Margin of safety

Percent

Answer 11

Margin of Safety / Total Sales = Margin of safety %