ACC 117 Lecture Notes - Lecture 24: Earnings Before Interest And Taxes, Fixed Cost, Income Statement
Document Summary
Contribution margin amount available to cover fixed expenses and provide profits for the period (sales revenue variable expenses) Cm/unit = (selling price/unit variable expenses/unit) Cm ratio = (contribution margin / sales) Determines change in contribution margin given a change in sales volume. Change in cm = (cm ratio) x ($ change in sales) Variable expense ratio (variable expenses) / (sales) Target profit analysis determining level of sales needed to achieve a desired target profit. (target profit + fixed expenses) // (unit cm) (target profit + fixed expenses) // (cm ratio) Margin of safety how far sales can change before experiencing a net loss (total actual sales) (break-even sales) Margin of safety % = (margin of safety ($)) / (total sales ($)) Ex: margin of safety % = 20% Means that a 20% reduction in sales will result in just breaking even. Margin of safety in units = (margin of safety) / (selling price) Ex: margin of safety = 50 units.
