Managerial Accounting: Cost-Volume-Profit Relationships
Contribution Margin Approach–
Sales
Less: Variable Costs
= Contribution Margin
Less: Fixed Costs
= Net Operating Income
Contribution Margin Ratio
= _CM_
Sales
=
_TotalCM_
TotalSales
=
___UnitCM____
UnitSellingprice
Break- Even Equation Method –
Sales = Variable Costs + Fixed Costs + Profits
* Profits = 0 for break even, Profits = “desired profit” to determine unit sales for that number
Break – Even Contribution Margin Method –
BE in Units Sold
BE in Total Sales $
= _FixedCosts_
UnitCM
= _FixedCosts_
CMRatio
Target Profit: Contribution Margin Method –
Unit Sales to attain the Target Profit
$ Sales to attain Target Profit =
= _Fixed Costs + Target Profit_
Unit CM
_Fixed Costs + Target Profit_
CM Ratio
Margin of Safety: The excess of budgeted sales dollars over Break Even volume of sales dollars
Margin of Safety = Total Budgeted (or actual) Sales – Break Even Sales
Margin of Safety Percentage
Degree of Operating Leverage
=
Margin of Safety in Dollars
Total Budgeted Sales
= _______CM_______
Net Operating Income
This instructional aid was prepared by the Tallahassee Community College Learning Commons.