Cvp Analysis Flashcards
0
Q
What does cm$ show
A
For every item sold, the company will have $200 to cover fixed costs and co tribute to operating income
1
Q
Formula to calculate contribution margin in $
A
Unit selling price - variable costs = CM per unit in dollars
$500 - $300 = $200 / unit
2
Q
What is the formula to calculate CM ratio
A
CM per unit / Unit selling price =. CM ratio as a %
3
Q
What does the CM ratio show?
A
It means that 0.40 of each sales dollar can be applied to fixed costs and contribute to operating income
4
Q
What is the CM ratio good for?
A
Very helpful in determining the effects of changes in sales on operating income.
If sales increase by $100,000 operating income will increase by $40,000 (100,000 x 40 %)
