BEC Chapter 4 - M2 Projection & Forecasting

Question 1

Margin of Safety Formula

Answer 1

Margin of Safety = Total Sales (in dollars) - Breakeven sales (in dollars)

Question 2

Breakeven point in dollars formula

Answer 2

Breakeven point in dollars = Total Fixed Costs / Contribution Margin ratio (CM/Sales)

Question 3

Required sales volume for Target Profit

Answer 3

Sales (units) = Fixed Cost + Pretax profit / Contribution margin per unit

Question 4

Sales Dollars needed to obtain a desired profit

Answer 4

Sales dollars = Variable Cost + Fixed Costs + Pretax Profit

Question 5

Convert After-tax Profit to Pretax Profit

Answer 5

After-tax Profit(100% - Tax Rate) / %
i.e. After-tax profit = $75,000, Tax Rate = 40%
After-tax = $75,000(1 - 40%) = Pretax Profit
After-tax = $75,000 / 60% = $125,000

Question 6

Breakeven analysis assumes

Answer 6

that all variable costs & revenues are constant on a per-unit basis & are linear over a relevant range. Fixed costs in total are constant.