Chapter 3 - Cost-Volume-Profit Analysis

Question 1

How do you calculate Contribution Margin/units?

Answer 1

CM/units = SP/units - VC/units

Question 2

How do we calculate CM ratio?

Answer 2

CM ratio = Contribution margin/Sales

Question 3

How do we calculate Break-Even in units?

Answer 3

BE in units = Fixed costs/(CM/unit)

Question 4

How do we calculate Break-Even in sales dollars?

Answer 4

BE in Sales $ = Fixed costs/CM ratio

Question 5

How do we calculate Target Operating Income in units?

Answer 5

Target OI in units = (Fixed costs + Target operating income)/(CM/unit)

Question 6

How do we calculate Target Operating Income in sales dollars?

Answer 6

Target OI in Sales $ = (Fixed costs + Target operating income)/(CM ratio)

Question 7

How do we calculate the Margin of Safety (MoS)?

Answer 7

MoS = Budgeted Sales (Actual Sales) - Break-Even Sales

Question 8

How do we calculate Margin of Safety (MoS) in units?

Answer 8

MoS in units = MoS/(Selling Price per unit)

Question 9

How do we calculate the Margin of Safety (MoS) ratio?

Answer 9

MoS ratio = MoS/Sales

Question 10

How do we calculate Operating Leverage (OL)?

Answer 10

OL = Contribution margin/Operating Income

Question 11

How else can we calculate Operating Income (OI)?

Answer 11

OI = Net operating income/(1 - Tax Rate)
OR
OI = Margin of Safety x CM ratio

Question 12

How do we calculate Net Operating Income (NOI)?

Answer 12

NOI = Operating Income - Tax

Question 13

How do you calculate Contribution Margin (CM)?

Answer 13

CM = Sales - Variable Costs
OR
CM = (Selling Price - Variable Costs) x Quantity