Cost-Volume-Profit Analysis Calculations

Question 1

Describe the break-even formula in units.

Answer 1

Fixed costs divided by (price - variable costs per unit).

Question 2

List the basic formula for break-even analysis.

Answer 2

(Quantity x Sales Price) = Fixed Costs + (Quantity x Variable Costs per unit).

Question 3

How does the denominator differ when calculating break-even units and break-even dollars?

Answer 3

Units = price - variable costs per unit
Dollars = (CMunit/price)

Question 4

How is the contribution margin ratio calculated?

Answer 4

CM ratio = CM per unit / price; this represents the percentage of each sales dollar that is available to cover fixed costs.

Question 5

What is the importance of the contribution margin to break-even analysis?

Answer 5

Contribution margin represents the portion of revenues that are available to cover fixed costs.