Management and Organizational Studies 3370A/B Chapter Notes - Chapter 4: Income Statement, Variable Cost, Fixed Cost

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 3370A/B
• Professor: Bill Dawson

Document Summary

The contribution income statement is helpful to managers in judging the impact on profits of changes in selling price, cost, or volume. Contribution margin (cm) is the amount remaining from sales revenue after variable expenses have been deducted. Sales, variable expenses, and contribution margin can also be expressed on a per unit basis. The cm ratio is calculated by dividing the total contribution margin by total sales. We do not need to prepare an income statement to estimate profits at a particular sales volume. Simply multiply the number of units sold above break=even by the contribution margin per unit. The relationship among revenue, cost, profit and volume can be expressed graphically by preparing a cvp graph. In a cvp graph, unit volume is usually repreented on the horizontal (x) axis and dollars on the vertical (y) axis. In terms of units, the contribution margin ratio is. Cm ratio = unit cm divided by unit selling price.