Chapter 5

Question 1

Point where company will make no income and suffer no loss

Answer 1

Break-Even Point

Question 2

Formula to calculate Contribution Ratio?

Answer 2

Contribution Margin $ / Sales Dollars $

or
Contribution Margin per unit / Sales Price per unit

Question 3

Difference between Contribution Ratio and Contribution Margin

Answer 3

Contribution Margin
-how much $$$ leftover company has to pay other expenses after paying all VC

Contribution Ratio
-% of money left over from sales (after paying VC) to cover its fixed costs

Question 4

How do you calculate Break-Even point in sales $$$

Answer 4

[ FC + EBIT (desired income before-tax) ]

                          / Contribution Ratio

Question 5

How do you calculate Break-Even point in units?

Answer 5

SPX - VCX - FC = 0