CVP Flashcards
Variable (Direct) Costing
Best source of info for Break Even analysis as product costs are DM, DL and Variable OH whereas fixed costs are period costs and applied periodically.
Concept: What is the impact of shifting a product mix to lower CM product?
- If sales are CONSTANT, then shifting to a lower CM product in overall mix leads to DECREASE in operating income
- BEP increases!
Equation: Required Sales for a Pre-Tax Operating Profit, in units
Total Fixed Costs + Pre-Tax Operating Profit
÷
Contribution margin per unit
Equation: Required Sales for a Pre-Tax Operating Profit, in $
Total Fixed Costs + Pre-Tax Operating Profit
÷
Contribution margin ratio
where
Contribution margin ratio = (Selling Price - Variable Price)/Selling Price
Equation: Break-even Point, single product, in units
Total Fixed Costs
÷
Contribution margin per unit
Equation: Break-even Point, single product, in $
Total Fixed Costs
÷
Contribution margin ratio
Equation: Break-even Point, multiple-product mix, in units
Total Fixed Costs
÷
Weighted Average Contribution per unit
Equation: Pre-tax Profit Target
After Tax Profit target
÷
1 - Tax Rate
Equation: Contribution Margin, when given contribution margin ratio
Sales x Contribution Margin Ratio
Equation: Contribution margin, alternate version with pre-tax profit
Total Fixed Costs + Pre Tax Profit