Exam #2 Flashcards
Unit Contribution Margin (UCM or CM/unit):
Unit selling price- unit variable prices
= contribution margin per unit
(The sales revenue available from each unit that is available to cover fixed costs and contribute to income.)
Contribution Margin Ratio (CMR):
Contribution margin per unit/ unit selling price =contribution margin ratio
(The percentage of every sales dollar
available to cover fixed costs and contribute to income.)
CVP (cost volume profit) income statement
Sales
- Variable costs
= Contribution margin
-fixed costs
=Net income
An increase in sales X CM ratio
Increase in net income when we have increase in sales
Break Even dollars
Fixed costs / CMR
Contribution margin must equal..?
Total fixed costs (NI=0)
Required sales in units
(FIXED COST + TARGET NET INCOME) / UCM
= required sales in units
Margin of safety in dollars
actual expected sales - break-even sales
=margin of safety
MOS ratio
MOS in dollars / actual sales
Required sales in dollars
(Fixed costs+ Target net income) / CMR
= Required sales in dollars
Additional Contribution Margin Earned (units)
Increase in Units x UCM = Additional Contribution Margin Earned
Additional Contribution Margin Earned (dollars)
Increase in Sales Dollars x CM Ratio = Additional Contribution Margin Earned
Weighted average UCM
(UCM x sales mix percentage) + (UCM x sales mix percentage) =Weighted average UCM
Weighted average CMR
(CMR x sales mix percentage) + (CMR x sales mix percentage) =Weighted average CMR
Break-even point in units (weighted?)
fixed cost/ weighted average ucm
Break-even point in dollars (weighted?)
fixed cost/ weighted average cmr
how do you determine units or Sales Dollars that each product or
division must sell?
Multply TOTAL break-even point by the Sales Mix % to determine units or Sales Dollars
Contribution Margin per
unit of limited resource
CM per unit / # of units of resource = Contribution Margin per
unit of limited resource
Degree of Operating Leverage
Contribution Margin/ Net Income= Degree of Operating Leverage
Target cost
market price - desired profit = target cost
Desired profit
(Desired ROI % x Amount Invested) / Units produced = Desired profit
Markup
selling price - cost
Target sell price
Cost + Markup
Markup percentage
Markup (desired ROI per unit) / Total unit cost = Markup percentage
Target selling price per unit
Total unit cost + (total unit cost x markup percentage)= Target selling price per unit
Minimum Transfer Price
Opportunity Cost + Internal Variable Cost = Minimum Transfer Price
