Unit 3 - Calculating Profit

Question 1

What is the order of a simple Cost Volume Profit Statement?

Answer 1

Sales less variable costs = Contribution Margin

Contribution Margin less fixed costs = Profit

Question 2

How do you calculate contribution margin per unit?

Answer 2

Profit = (Number of units times Contribution Margin per unit) - Fixed Costs

Question 3

How do your calculate profit targets?

Answer 3

Profit Target = (Fixed costs + Profit Target) divided by Contribution margin

Question 4

How do you calculate the contribution margin ratio?

Answer 4

Contribution margin ratio = Contribution margin divided by Sales

Question 5

How can you use the contribution margin ratio to calculate break even sales?

Answer 5

Break Even sales = Fixed costs divided by the Contribution Margin Ratio

Question 6

When is it necessary to calculate a contribution margin ratio?

Answer 6

When a business does not provide per-unit or per-hour costs