Chapter 15 Flashcards
1
Q
What 3 things are needed for a cost to be relevant in decision making
A
Cash flow must be incremental - only incurred if the project goes ahead
Cash flow is not a sunk cost - ie it has not already happened
Revenue or cost must actually be a cash flow eg not depreciation
2
Q
What is the formula for contribution per unit
A
Revenue per unit - total variable costs per unit
3
Q
What is the formula for break even output
A
Total fixed costs / contribution per unit
4
Q
What is the formula for the margin of safety
A
(Planned sales - break even sales) / planned sales
5
Q
What is the equation for output to hit a target profit
A
(Total fixed costs + target profit) / contribution per unit
6
Q
How do you calculate operating margin
A
Operating profit / revenue
