BEC Deck 9-Planning & Measurement Cont"

Question 1

Breakeven Point-

Answer 1

Is defined as the sales level at which sales revenues exactly offset total costs, both fixed and variable.
Basic Formula is:
(Quantity X Sales Price)=Fixed Costs + (Quantity X Variable Cost Per Unit) this formula not recommended for CPA exam as it is harder than contribution margin formula.

Question 2

Contribution Margin approach to Breakeven Point-

Answer 2

The contribution margin represents the portion of revenues which are available to cover fixed costs. It is calculated as follows:
Sales Revenue - Variable Costs = Contribution Margin
Per Unit basis:
Sales Price Per Unit - Variable Cost Per Unit = CM per Unit

Question 3

Breakeven Point in Units=

Answer 3

Total Fixed Costs / Contribution Margin per Unit

Question 4

Contribution Margin Ratio=

Answer 4

Contribution Margin / Sales Revenue