Chapter 6 Flashcards
How do you calculate total contribution margin?
Total CM = Sales - Variable Cost
How do you calculate unit contribution margin?
Unit CM = Selling Price - VC
What is the cost volume profit equation using contribution margin?
Profit = (SP - VC) Q - TFC
How do you calculate contribution margin ratio?
CM ratio = CM/Sales
How do you calculate contribution margin ratio per unit?
CM ratio per unit = CM per unit / SP
What is the cost volume profit equation using CM ratio?
Profit = (sales * CM ratio) - TFC
What are the two equations to find variable expense ratio?
- Variable expense / sales
- 1 - CM ratio
How do you calculate breakeven units?
Break even units = TFC / CM
How do you calculate breakeven dollars?
Break even dollars = TFC / CM ratio
How do you calculate the target profit in units?
Target Profit Units = (Target Profit + TFC) / CM
How do you calculate target profit in sales?
Target Profit Sales = (Target Profit + TFC) / CM ratio
How do you calculate margin of safety in words?
Difference between expected/actual sales and break even sales
What does operating leverage measure?
How % change in sales will affect profit
How do you calculate degree of operating leverage?
Degree of Op. leverage = CM / NOI
How do you calculate percent change in net operating income for a percent change in sales?
Degree of operating leverage * % change in sales
Describe the High Low method?
Y = mx + b
mx = change in cost / change in hours
b(max) = total cost - total variable cost
TVC -> mx * hours
Describe account analysis.
Each account is classified as either variable or fixed, based on the analyst’s knowledge of how the account behaves.
Describe the engineering approach.
Classifies costs based on an industrial engineer’s, evaluation of production methods, and material, labor, and overhead requirements.
