break even ratios

Question 1

contribution margin

Answer 1

= sales price - variable costs

Question 2

contribution margin ratio equation and what it does

Answer 2

contribution margin / sales price * 100

• money available from each sale to cover fixed costs

Question 3

break even analysis equation and what it does

Answer 3

= fixed costs / contribution margin

• calculates required units to sell to cover fixed costs

Question 4

target profit analysis equation and what it does

Answer 4

= (fixed costs + target profit) / contribution margin

• calculates required units to sell to cover fixed costs and achieve a target profit amount

Question 5

cost - volume profit analysis ratio and what happens if price goes up or down

Answer 5

calculates change in profitability using different scenarios

if price goes up, volume (unit sales) goes down

if price goes down, volume (unit sales) goes up

Question 6

COGS (manufacturing business)

Answer 6

= beginning finished goods inventory + cost of goods manufactured - ending finished goods inventory

Question 7

COGS (service business)

Answer 7

= beginning inventory + COGAS - ending inventory