Chapter 6

Question 1

CVP Income Statement:

Answer 1

—————————— Total Per unit
Sales
Variable cost
Contribution Margin
Fixed cost
Operating income

Question 2

The formula for contribution margin per unit:

Answer 2

Price per unit - Unit Variable cost= Contribution margin per unit

Question 3

The formula for contribution per unit ratio:

Answer 3

Contribution margin per unit/unit price:

Question 4

Sales is equal to 100%
Variable cost = whatever variable
Contribution Margin will be—

Answer 4

sales percent (100%)- Variable cost percent (For ex 65%)
= Contribution Margin (100%-65%=35%)

So contribution margin will be 35% of sales.

Question 4

Break-even point is when:

Answer 4

Fixed cost is equal to contribution Margin

Question 5

Math formula for the break-even point:

And the very similar contribution margin technique:

Answer 5

(Fixed cost/contribution margin per unit)= units needed to break even
If you want the sales, just multiply the units by their price
—————
Fixed cost/ contribution margin per unit= break even in units

Fixed cost/ contribution margin ratio: break even in dollars

Question 6

Target Operating income for required sales in units:

Target operating income for required sales in dollars:

Answer 6

(Fixed cost+target operating income)/ contribution margin per unit:

(Fixed cost+ target operating income)/ contribution margin ratio:

Question 6

The margin of safety in units dollars formula:

The margin of safety ratio:

Answer 6

Actual(or expected sales)- break even sales= Margin of safety in dollars

Margin of safety in dollars/ actual(or expected sales)= margin of safety ratio