Chapter 5 Equations Flashcards
Profit Equation
Profit=(Sales-Variable Expenses)-Fixed Expenses
CM Ratio
CM= Contribution Margin/Sales
Unit Sales to Break Even
Unit Sales to Break Even=Fixed Expenses/Unit CM
Dollar Sales to Break Even
Dollar Sales to Break Even=Fixed Expenses/CM ratio
Unit Sales to Attain Target Profit
=Target Profit + Fixed Expenses/Unit CM
Dollar Sales to Attain Target Profit
=Target Profit + Fixed Expenses/CM Ratio
Margin of Safety in Dollars formula
Total Budgeted Sales-Break Even Sales
Margin of Safety Percentage formula
Margin of Safety in Dollars/Total Budgeted Sales in dollars
Degree of operating leverage formula
=contribution margin/net operating income
Percentage Change in Net Operating Outcome
Degree of Operating Leverage*Percentage Change in Sales
Contribution margin ratio (CM ratio
ratio computed by dividing contribution margin by dollar sales.
Variable expense ratio
A ratio computed by dividing variable expenses by dollar sales
Units go w/ Dollars go w/
Unit to Unit //// Dollars to ratios
Which comes first, Margin of Safety in Dollars or Margin of Safety %?
Margin of Safety in Dollars
How do you calculate the increase of CB margin when you have an increase in sales?
Dollar Sales increase * current CM ratio=expected increase in CM
