Chapter 5 Flashcards
variable expense ratio
variable expenses/sales put as %
Contribution Margin ratio %
Contribution Margin (sales-variable expenses)/sales
profits are affected by the following five factors:
Selling prices sales volume unit variable costs total fixed costs mix of products sold
contribution income statement accounts
- sales
- variable expenses (per unit)
- contribution margin (sales - variable expenses)
- Fixed expenses
- Net operating income
what tool can be sued to easily calculate the change in profit resulting from a change in sales, price, sales volume, variable costs or fixed costs.
CVP analysis: this allows companies to easily identify the change in profit due to changes in cost volume and selling price
the break even point is reached when…
contribution margin (sales minus variable costs) = fixed expenses
what is the profit formula?
profit= (sales-variable expenses) - fixed expenses
what is unit CM
Selling price per unit- variable expenses per unit.
contribution margin by unit. instead of multiplying the units by selling price and then the variable expenses by units and then subtracting them, you could find the CM by unit and multiply it by the units.
net operating income can be calculated as
(unit sales - unit sales to break even) x unit contribution margin
how to calculate a change net profit when you increase or decrease your unit sales
((sales-variable costs)/ # of units) * the amount of units increased or decreased.
CM Ratio
Contribution margin (Sales-Variable Costs)/Sales
Profit
CM Ratio*Sales-Fixed Expenses
Variable expense ratio
Variable Expenses/sales
Break Even Analysis
you can find the break-even Analysis by making sure that Sales-Variable expenses = Fixed expenses
Unit Sales to Break Even
fixed expenses / unit cm
Dollar Sales to break even=
fixed expenses / cm ratio
unit sales to attain the target profit=
(target profit + fixed expenses) / unit cm
Dollar sales to attain the target proft
(target profit + Fixed Expenses) / CM ratio
equation method to comput unit sales to achieve a target profit
(Unit contribution margin x Unit sales) - Fixed Expense
% change in Net operating income
degree of operating leverage x percentage change in sales
Degree of operating leverage=
Contribution Margin / net operating income
Operating leverage is t
a measure of how sensitive net operating income is to a given percentage change in sales dollars
Sales mix
A change in the sales mix will most likely change the break-even point
Margin of safety
the amount that you have after you have broke even with sales
or
the amount by which sales can drop before losses are incurred
