Equations

Question 1

What is the equation for calculating the total contribution margin of a product or service?

Answer 1

Sales revenue - variable costs

Question 2

What is the equation for calculating the contribution margin per unit?

Answer 2

Revenue per unit - variable costs per unit

Question 3

What is the contribution margin ratio?

Answer 3

Contribution per unit / sales per unit (selling price)

Question 4

How is the break-even point in units calculated?

Answer 4

Total fixed costs / contribution margin per unit

Question 5

How is the margin of safety in units calculated?

Answer 5

Actual or predicted level of activity in units - break-even level of activity in units.

Question 6

How can the margin of safety be expressed as a percentage?

Answer 6

(MoS in dollars / total actual sales) x 100

Question 7

How is operating leverage calculated?

Answer 7

Contribution margin / profit

Question 8

What is the calculation for the number of units needing to be sold to reach the target profit?

Answer 8

(Desired profit + total fixed costs) / contribution margin per unit

Question 9

How is the break-even point in dollars calculated?

Answer 9

Break-even units x selling price

Question 10

How is the margin of safety in sales calculated?

Answer 10

Actual or predicted level of sales - break-even level of sales