Cost-Volume-Profit Analysis: A Managerial Planning Tool

Chapter 7
Cost-Volume-Profit Analysis:
A Managerial Planning Tool
Mowen/Hansen/Heitger, Managerial Accounting: The Cornerstone of Business Decision Making, 7th Edition. © 2018 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part
Learning Objectives
1. Determine the break-even point in number of units and in total sales dollars
2. Determine the number of units that must be sold, and the amount of
revenue required, to earn a targeted profit
3. Prepare a cost-volume-profit graph, and explain its meaning
4. Apply cost-volume-profit analysis in a multiple-product setting
5. Explain the impact of risk, uncertainty, and changing variables on cost-
volume-profit analysis
Mowen/Hansen/Heitger, Managerial Accounting: The Cornerstone of Business Decision Making, 7th Edition. © 2018 Cengage. All
Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part
Break-Even Point in Units and in Sales Dollars (1 of 4)
• Cost-volume-profit (CVP) analysis estimates how changes in the following

three factors affect a company’s profit
o Costs (both variable and fixed)
o Sales volume
o Price
• Companies use CVP analysis to help them reach important benchmarks,

such as breakeven point
• The break-even point is the point where total revenue equals total cost (i.e.,
the point of zero profit)
• The level of sales at which contribution margin just covers fixed costs and
consequently, net income is equal to zero
• Since new companies experience losses (negative operating income)
initially, they view their first break-even period as a significant milestone
CVP analysis can address many other issues:
1. The number of units that must be sold to break even
2. The impact of a given reduction in fixed costs on the break-even point
3. The impact of an increase in price on profit
The basis of CVP analysis:
1. The contribution margin income statement
2. Calculating the break-even point in units
3. Calculating the contribution margin ratio and the variable cost ratio
4. Calculating the break-even point in sales dollars
Using Operating Income in Cost-Volume-Profit
Analysis (1 of 5)
• In CVP analysis, the terms “cost” and “expense” are often used
interchangeably. This is because the conceptual foundation of CVP analysis
is the economics of break-even analysis in the short run
• It is assumed that all units produced are sold. Therefore, all product and
period costs do end up as expenses on the income statement
Operating Income = Total Revenue − Total Expense
Analysis (2 of 5)
• For the income statement, expenses are classified according to function; that
is, the manufacturing (or service provision) function, the selling function, and
the administrative function
• For CVP analysis, however, it is much more useful to organize costs into
fixed and variable components
Analysis (3 of 5)
• Variable costs are all costs that increase as more units are sold, including:
o direct materials
o direct labour
o variable overhead
o variable selling expenses
• Fixed costs include:

o fixed overhead
o fixed selling and administrative expenses
Analysis (4 of 5)
• The income statement format that is based on the separation of costs into
fixed and variable components is called the contribution margin income
statement
Analysis (5 of 5)
Contribution margin is the difference between sales and variable expense. It
is the amount of sales revenue left over after all the variable expenses are
covered that can be used to contribute to fixed expense and operating income
Sales $ XXX
Total variable cost (XXX)
Total contribution margin $ XXX
Total fixed cost (XXX)
Operating income $ XXX
Example 7.1: How to Prepare a Contribution Margin
Income Statement (1 of 4)
Whittier Company plans to sell 1,000 mowers at $400 each in the coming year.
Product costs include:
Direct materials per mower $ 180
Direct labor per mower $100
Variable factory overhead per mower $25
Total fixed factory overhead $15,000
Variable selling expense is a commission of $20 per mower; fixed selling and
administrative expense totals $30,000.
Example 7.1: How to Prepare a Contribution
Margin Income Statement (2 of 4)
Required:
1. Calculate the total variable expense per unit.
2. Calculate the total fixed expense for the year.
3. Calculate the unit contribution margin.
4. Prepare a contribution margin income statement for Whittier for the coming
year.
Solution:
1. Total variable expense per unit:
Total Variable Expense per Unit = Direct Materials + Direct Labor + Variable
Overhead + Variable Selling Expense
= $180 + $100 + $25 + $20 = $325
2. Total Fixed Expense = Fixed Factory Overhead + Fixed Selling and

Administrative Expense
= $15,000 + $30,000 = $45,000
3. Unit Contribution Margin = Price − Unit Variable Cost = $400 − $325 = $75
Break-Even Point in Units (1 of 2)
• If the contribution margin income statement is recast as an equation, it
becomes more useful for solving CVP problems
Basic CVP Equations:
• Operating Income = Sales − Total Variable Expenses − Total Fixed

Expenses
• Operating Income = (Price × Number of Units Sold) − (Variable Cost per
Unit × Number of Units Sold) − Total Fixed Cost
• The break-even point tells managers how many units must be sold to cover
all costs. Once more than the break-even units are sold, the company begins
to earn a profit
Example 7.2: How to Calculate the Break-Even Point in
Units (1 of 3)
Refer to the Whittier Company information in Example 7.1. Recall that mowers
sell for $400 each, and variable cost per mower is $325. Total fixed cost equals
$45,000.
Required:
1. Calculate the number of mowers that Whittier must sell to break even, using
the operating income equation.
2. Calculate the number of mowers that Whittier must sell to break even, using
the contribution margin equation.
3. Check your answer by preparing a contribution margin income statement
based on the break-even point.
Example 7.2: How to Calculate the Break-Even
Point in Units (2 of 3)
Solution:
1. Operating Income = (Price × Units) − (Variable Cost × Units) − Total Fixed
Cost
0 = ( $400  Units ) − ( $325  units ) − $45,000
Units = $45,000
( $400−$325 )
= 600
Total Fixed Cost
2. Break-Even Number of Mowers =
Unit Contribution Margin
$45,000
= = 600
$75
Example 7.2: How to Calculate the Break-Even
Point in Units (3 of 3)
3. Contribution margin income statement based on 600 mowers.

Sales ($400 × 600 mowers) $240,000
Total variable expense ($325 × 600) 195,000
Total contribution margin $ 45,000
Total fixed expense 45,000
Operating income $0
Indeed, selling 600 units does yield a zero profit.
Break-Even Point in Units (2 of 2)
• Break-even units are equal to the fixed cost divided by the contribution
margin per unit
Total Fixed Cost

Break-Even Units =
Break-Even Point in Sales Dollars
• Managers using CVP analysis may use sales revenue as the measure of
sales activity instead of units sold. A units sold measure can be converted to
a sales revenue measure by multiplying the unit selling price by the units
sold:
Sales Revenue = Price × Units Sold
For example, the break-even point for Whittier is 600 mulching mowers; the
selling cost is $400 per mower.
Breakeven in Sales $’s = 600 × $400 = $240,000
Variable Cost Ratio and Contribution Margin Ratio (1 of 2)
Any answer expressed in units sold can be easily converted to one expressed
in sales revenues
• Variable Cost Ratio
o Price − Variable cost per unit = $10 − $6 = $4
o Variable Cost × Units Sold = $6 × 10 units = $60
Variable Cost per Unit $6

= = 60%
Price $10
Variable Cost Ratio and Contribution Margin Ratio (2 of 2)
Contribution Margin Ratio
Total Contribution Margin $40

= = 40%
Total Sales $100
Alternatively:
Contribution Margin per Unit $4
= = 40%
Price $10
Example 7.3: How to Calculate the Variable Cost Ratio and
the Contribution Margin Ratio (1 of 3)
Variable cost per unit is $325. Total fixed cost is $45,000.
Required:
1. Calculate the variable cost ratio.
2. Calculate the contribution margin ratio using unit figures.
3. Prepare a contribution margin income statement based on the budgeted
figures for next year. In a column next to the income statement, show the
percentages based on sales for sales, total variable expense, and total
contribution margin.
Example 7.3: How to Calculate the Variable Cost Ratio
and the Contribution Margin Ratio (2 of 3)
Solution:
1. Variable Cost Ratio = Variable Cost per Unit
Price
$325
= = 0.8125,or 81.25%
$400
2. Contribution Margin per Unit = Price − Variable Cost per Unit = $400 − $325
= $75
Contribution Margin per Unit
Contribution Margin Ratio =
Price
$75
= = 0.8175,or 81.75%
$400
Example 7.3: How to Calculate the Variable Cost Ratio
and the Contribution Margin Ratio (3 of 3)
3. Contribution margin income statement based on budgeted figures:
Percent of Sales
Sales ($400 × 1,000 mowers) $400,000 100.00
Total variable expense (0.8125 × $400,000) 325,000 81.25
Total contribution margin $ 75,000 18.75
Operating income $ 30,000
Fixed Cost’s Relationship, Variable Cost Ratio, Contribution
Margin Ratio
• How do fixed costs relate to the variable cost ratio and contribution margin
ratio?
• Since the total contribution margin is the revenue remaining after total variable costs are
covered, it must be the revenue available to cover fixed costs and contribute to profit
• How does the relationship of fixed cost to contribution margin affect
operating income?
• There are three possibilities:
o Fixed cost equals contribution margin; operating income is zero; the company breaks
even
o Fixed cost is less than contribution margin; operating income is greater than zero; the
company makes a profit
o Fixed cost is greater than contribution margin; operating income is less than zero; the
company makes a loss
Calculating Break-Even Point in Sales Dollars
• The break-even point in sales dollars makes it easy for managers to see
instantly how close they are to breaking even using only sales revenue data
• Since sales are typically recorded immediately, the manager does not have
to wait to have an income statement prepared in order to see how close the
company is to breaking even
• The equation to figure the break-even sales dollars is:
Total Fixed Expenses

Break-Even Sales =
Sales Dollars (1 of 3)
Total variable expense per unit is $325. Total fixed expense is $45,000.
Required:
1. Calculate the contribution margin ratio.
2. Calculate the sales revenue that Whittier must make to break even by using
the breakeven point in sales equation.
based on the break-even point in sales dollars.
Sales Dollars (2 of 3)
Solution:
1. Contribution Margin per Unit = Price − Variable Cost per Unit = $400 − $325
= $75

Contribution Margin Ratio =
Price
$75
= = 0.1875, or 18.75%
$400
[Hint: The contribution margin ratio comes out cleanly to four decimal places. Don’t round it, and your
break-even point in sales dollars will yield an operating income of $0 (rather than being a few dollars
off due to rounding).] Notice that the variable cost ratio equals 0.8125, or the difference between
1.0000 and the contribution margin ratio.
Example 7.4: How to Calculate the Break-Even Point
in Sales Dollars (3 of 3)
2. Calculate the break-even point in sales dollars:
Total Fixed Cost $45,000

Break-Even Sales Dollars = = = $240,000
Contribution Margin Ratio 0.1875
3. Contribution margin income statement based on sales of $240,000:

Sales $240,000
Total variable expense (0.8125 × $240,000) 195,000
Operating income $0
Indeed, sales equal to $240,000 does yield a zero profit.
Units And Sales Dollars Needed to Achieve a Target
Income (1 of 2)
• By looking at the number of units or sales dollars needed to earn a target
operating income, managers turn their focus away from a point of zero profit
and can aim toward making a particular positive profit
• Managers can easily compare, at any point in time, the actual sales revenue
made with the sales revenue needed to earn a particular profit objective
Units And Sales Dollars Needed to Achieve a Target
Income (2 of 2)
• The break-even point is useful information and an important benchmark for

relatively young companies, most companies would like to earn operating
income greater than $0
• CVP allows us to do this by adding the target income amount to the fixed
cost
• First, let’s look in terms of units that must be sold:
Total Fixed Cost + Target Income

Number of Units to Earn Target Income =
Example 7.5: How to Calculate the Number of Units
to Be Sold to Earn a Target Operating Income (1 of 2)
Whittier Company sells mowers at $400 each. Variable cost per unit is $325,
and total fixed cost is $45,000.
Required:
1. Calculate the number of units that Whittier must sell to earn operating
income of $37,500.
based on the number of units calculated.
Example 7.5: How to Calculate the Number of Units to Be
Sold to Earn a Target Operating Income (2 of 2)
1. Number of Units = Target Income + Total Fixed Cost
$37,500 + $45,000
= = 1,100
$75
2. Contribution margin income statement based on sales of 1,100 units:
Sales ($400 × 1,100) $440,000
Total variable expense ($325 × 1,100) 357,500
Indeed, selling 1,100 units does yield operating income of $37,500.

Units to Be Sold to Achieve a Target Income
• How much sales revenue must Whittier generate to earn an operating
income of $37,500?
• This question is similar to the one we asked earlier in terms of units but
phrases the question directly in terms of sales revenue
• To answer the question, add the targeted operating income of $37,500 to
the $45,000 of fixed cost and divide by the contribution margin ratio. This
equation is:
Total Fixed Cost + Target Income

Sales Dollars to Earn Target Income =
Example 7.6: How to Calculate Sales Needed to Earn
a Target Operating Income (1 of 3)
Whittier Company sells mowers at $400 each. Variable cost per unit is $325,
and total fixed cost is $45,000.
Required:
1. Calculate the contribution margin ratio.
2. Calculate the sales that Whittier must make to earn an operating income of
$37,500.
based on the sales dollars calculated.
Example 7.6: How to Calculate Sales Needed to Earn a Target
Operating Income (2 of 3)
Solution:
$400 − $325
1. Contribution Margin Ratio = = 0.1875
$400
Target Income + Total Fixed Cost

2. Sales Dollars =
$37,500 + $45,000
= = $440,000
0.1875
Example 7.6: How to Calculate Sales Needed to Earn a Target
Operating Income (3 of 3)
3. Contribution margin income statement based on sales revenue of $440,000:

Sales $440,000
Total variable expense (0.8125 × $440,000) 357,500
Indeed, sales revenue of $440,000 does yield operating income of $37,500.
Impact of Change in Revenue on Change in Profit
• Assuming that fixed costs remain unchanged, the contribution margin ratio
can be used to find the profit impact of a change in sales revenue
• To obtain the total change in profits from a change in revenues, multiply the
contribution margin ratio times the change in sales:
Change in Profits = Contribution Margin Ratio × Change in Sales
Graphs of cost-Volume-Profit Relationships
• Graphing sales revenue and total costs against units sold helps managers
clearly see the difference between variable cost and revenue
• It may also help them understand quickly what impact an increase or
decrease in sales will have on the break-even point
The Cost-Volume-Profit Graph (1 of 2)
• The cost-volume-profit graph depicts the relationships among cost, volume,
and profits (operating income) by plotting the total revenue line and the total
cost line on a graph
• To obtain the more detailed relationships, it is necessary to graph two
separate lines—the total revenue line and the total cost line
• These two lines are represented by the following two

equations:
Revenue = Price × Units
Total Cost = (Unit Variable Cost × Units) + Fixed Cost
The Cost-Volume-Profit Graph (2 of 2)
CVP Analysis Assumptions
Major assumptions of CVP analysis include:
1. Linear revenue and cost functions remain constant over the relevant range
2. Selling prices and costs are known with certainty
3. All units produced are sold; there are no finished goods inventories
4. Sales mix is known with certainty for multiple-product break-even settings
Multiple-Product Analysis
• Cost-volume-profit analysis is simple in a single-product setting. However,
most firms produce and sell a number of products or services
• When managers calculate the break-even point for individual products, they
can see the contribution each makes to profit and can tell at any point in time
how close a product is to breaking even
• How do we adapt the formulas used in a single-product setting to a multiple-
product setting?
• One important distinction is to separate direct fixed expenses from common fixed
expenses
o Direct fixed expenses are those fixed costs that can be traced to each segment and would be
avoided if the segment did not exist
o Common fixed expenses are the fixed costs that are not traceable to the segments and would
remain even if one of the segments was eliminated
Break-Even Calculations for Multiple Products
• When more than one product is produced and sold, managers must estimate
the sales mix and calculate a package contribution margin
• Sales mix is the relative combination of products being sold by a firm:
Total Fixed Costs

Break - Even Packages =
Package Contribution Margin
Also referred to as the ‘Weighted-average

contribution margin’
Example 7.7: How to Calculate the Break-Even Units for a
Multiple-Product Firm (1 of 4)
Recall that Whittier sells two products: mulching mowers priced at $400 and riding
mowers priced at $800. The variable cost per unit is $325 per mulching mower and
$600 per riding mower. Total fixed cost is $96,250. Whittier’s expected sales mix is
three mulching mowers to two riding mowers.
Required:
Form a package of mulching and riding mowers based on the sales mix and
calculate the package (weighted-average) contribution margin.
Calculate the break-even point in units for mulching mowers and for riding
mowers.
Check your answers by preparing a contribution margin income statement.
Example 7.7: How to Calculate the Break-Even Units
for a Multiple-Product Firm (2 of 4)
Solution:
1. Each package consists of three mulching mowers and two riding mowers:
Unit Variable Unit Contribution Package
Product Price Cost Margin Sales Mix Contribution Margin
Mulching $400 - $325 = $ 75 x 3 = $ 225
Riding $800 - $600 = $200 x 2 = $400
Package total $ 625
• The three mulching mowers in the package yield $225 (3 × $75) in contribution margin.
• The two riding mowers in the package yield $400 (2 × $200) in contribution margin.
• Thus, a package of five mowers (three mulching and two riding) has a total contribution
margin of $625.
Example 7.7: How to Calculate the Break-Even Units for a
Multiple-Product Firm (3 of 4)
2. Break − Even Packages

Total Fixed Costs
=
Package Contribution Margin
$96,250
=
$625
= 154 Packages
Mulching Mower Break-Even Units = 154 × 3 = 462

Riding Mower Break-Even Units = 154 × 2 = 308
Example 7.7: How to Calculate the Break-Even Units
for a Multiple-Product Firm (4 of 4)
3. Income statement—break-even solution:
Riding
Mulching Mower Mower Total
Sales $184,800 $246,400 $431,200
Total variable cost $150,150 $184,800 $334,950
Contribution margin $ 34,650 $ 61,600 $ 96,250
Total fixed cost $96,250
Operating income $0
Example 7.8: How to Calculate the Break-Even Sales
Dollars for a Multiple-Product Firm (1 of 4)
Recall that Whittier Company sells two products that are expected to produce
total revenue next year of $1,120,000 and total variable cost of $870,000. Total
fixed cost is expected to equal $96,250.
Required:
1. Calculate the break-even point in sales dollars for Whittier.
2. Check your answer by preparing a contribution margin income statement.
Solution:
$250,000
1. Contribution Margin Ratio =
$1,120,000
= 0.2232
Fixed Cost
Break - Even Sales =
$96,250
=
0.2322
= $431,228
[Note: Total break-even sales differ slightly between Examples 7.7 and 7.8 ($431,200 vs.
$431,228) due to the rounding of the contribution margin ratio to only four decimal places
(0.2232).]
2. Income statement—break-even solution:

Sales $431,228
Total variable cost (0.7768 × $431,228) 334,978
contribution margin $ 96,250
Total fixed cost 96,250
Operating income $0
• The break-even point in sales dollars implicitly uses the assumed sales mix
but avoids the requirement of building a package contribution margin.
• No knowledge of individual product data is needed.
• The computational effort is similar to that used in the single-product setting.
• Unlike the break-even point in units, the answer to CVP questions using
sales dollars is still expressed in a single summary measure.
• The sales revenue approach, however, does, sacrifice information
concerning individual product performance.
Cost-Volume-Profit Analysis and Risk and Uncertainty
• Managers must be aware of many factors in our dynamic world. CVP
analysis is a tool that managers use to handle risk and uncertainty:
• Changes in prices?
• Risks?
• Fixed costs?
• Variable costs?
• Uncertainty?
Introducing Risk and Uncertainty
• An important assumption of CVP analysis is that prices and costs are known
with certainty
• However, risk and uncertainty are a part of business decision making and
must be dealt with
Methods to Deal with Uncertainty and Risk

• Management must realize the uncertain nature of future prices, costs, and
quantities
• Management must assume a “break-even band” rather than a breakeven
point
• Managers should use sensitivity or “what-if” analysis
Margin of Safety (1 of 4)
• The margin of safety is the units sold or the revenue earned above the
break-even volume
• For example, if the break-even volume for a company is 200 units and the
company is currently selling 500 units, the margin of safety in units is:
Margin of Safety= Sales − Break-Even Units

= 500 − 200 = 30
• If the break-even volume for a company is $200,000 and the current
revenues are $500,000, the margin of safety in sales revenue is:
Revenues − Margin of Safety = $500,000 − $200,000 = $300,000
• In addition, the margin of safety can be expressed as a percentage of total
sales dollars 60%:
Margin of Safety $300,000

= = 0.60 or 60%
Revenues $500,000
• Two concepts useful to management are margin of safety and operating
leverage
• Both of these concepts may be considered measures of risk
• Each requires knowledge of fixed and variable costs
• The degree of operating leverage (DOL) can be measured for a given level
of sales by taking the ratio of contribution margin to operating income, as
follows:
Total Contribution Margin

Degree of Operating Leverage =
Operating Income
Example 7.9: How to Calculate the Margin of Safety
Recall that Whittier plans to sell 1,000 mowers at $400 each in the coming year.
Whittier has unit variable cost of $325 and total fixed cost of $45,000. Break-even
units were previously calculated as 600.
Required:
1. Calculate the margin of safety for Whittier in terms of the number of units.
2. Calculate the margin of safety for Whittier in terms of sales revenue.
Solution:
1. Margin of Safety in Units = 1,000 − 600 = 400 units
2. Margin of Safety in Sales Revenue = $400(1,000) − $400(600) = $160,000
Operating Leverage
• Operating leverage is the use of fixed costs to extract higher percentage
changes in profits as sales activity changes
• It is the measure of the proportion of fixed costs in a company’s cost
structure
• It is used as an indicator of how sensitive profit changes in sales volume
Example 7.10: How to Calculate the Degree of Operating
Leverage
Recall that Whittier plans to sell 1,000 mowers at $400 each in the coming year.
Whittier has unit variable cost per unit of $325 and total fixed cost of $45,000.
Operating income at that level of sales was previously computed as $30,000.
Required:
Calculate the degree of operating leverage for Whittier.
Solution: Total Contribution Margin

Degree of Operating Leverage =
Operating Income
=
( $400 − $325 )(1,000units )
$30,000
= 2.5
Summary of Operating Leverage
Operating Leverage: Operating Leverage:

HIGH LOW
% profit increase with Large Small
sales increase
% loss increase with Large Small
sales decrease
Example 7.11: How to Calculate the Impact of Increased Sales on
Operating Income Using the Degree of Operating Leverage (1 of 2)
Recall that Whittier had expected to sell 1,000 mowers and earn operating income
equal to $30,000 next year. Whittier’s degree of operating leverage is equal to 2.5.
The company plans to increase sales by 20% next year.
Required:
1. Calculate the percent change in operating income expected by Whittier for next
year using the degree of operating leverage.
2. Calculate the operating income expected by Whittier next year using the percent
change in operating income calculated in Requirement 1.
Example 7.11: How to Calculate the Impact of Increased Sales on
Operating Income Using the Degree of Operating Leverage (2 of 2)
Solution:
1. Percent Change in Operating Income = DOL × Percent Change in Sales =
2.5 × 20% = 50%
2. Expected Operating Income = $30,000 + (0.5 × $30,000) = $45,000

Cost-Volume-Profit Analysis: A Managerial Planning Tool

Загружено:

Сведения о документе

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

Cost-Volume-Profit Analysis: A Managerial Planning Tool

Загружено:

Авторское право:

Доступные форматы

Chapter 7

• Cost-volume-profit (CVP) analysis estimates how changes in the following

• Companies use CVP analysis to help them reach important benchmarks,

Operating Income = Total Revenue − Total Expense

• Fixed costs include:

2. Total Fixed Expense = Fixed Factory Overhead + Fixed Selling and

• Operating Income = Sales − Total Variable Expenses − Total Fixed

3. Contribution margin income statement based on 600 mowers.

Indeed, selling 600 units does yield a zero profit.

Total Fixed Cost

Variable Cost per Unit $6

Contribution Margin Ratio

Total Contribution Margin $40

• The equation to figure the break-even sales dollars is:

Total Fixed Expenses

Contribution Margin per Unit

Total Fixed Cost $45,000

3. Contribution margin income statement based on sales of $240,000:

Indeed, sales equal to $240,000 does yield a zero profit.

• The break-even point is useful information and an important benchmark for

Total Fixed Cost + Target Income

Indeed, selling 1,100 units does yield operating income of $37,500.

Total Fixed Cost + Target Income

Target Income + Total Fixed Cost

3. Contribution margin income statement based on sales revenue of $440,000:

Indeed, sales revenue of $440,000 does yield operating income of $37,500.

Change in Profits = Contribution Margin Ratio × Change in Sales

• These two lines are represented by the following two

Total Fixed Costs

Also referred to as the ‘Weighted-average

2. Break − Even Packages

Mulching Mower Break-Even Units = 154 × 3 = 462

2. Income statement—break-even solution:

Methods to Deal with Uncertainty and Risk

Margin of Safety= Sales − Break-Even Units

Margin of Safety $300,000

Total Contribution Margin

Solution: Total Contribution Margin

Operating Leverage: Operating Leverage:

Вам также может понравиться