Chapter 3 Flashcards
What is the break-even point?
Where the profit equals zero
What are 3 ways of calculating the break-even point?
Equation method, contribution margin per unit, contribution margin ratio
What is the equation method?
Sales-variable costs-fixed costs = profit
How do you find the contribution margin per unit?
Sales price - variable costs
How do you find the break-even point in units?
Fixed costs + target profit/contribution margin per unit
How do you calculate the break-even point using the contribution margin ratio?
Contribution margin/sales
It can be either in units or in dollars, just stay consistent
How can you reach a desired profit?
Sales-variable costs-fixed costs = profit
What is cost-plus priving?
Price products at variable cost plus some percentageW
What is prestige pricing?
Price products with a premium since the product is new or has a name brand
What is target costS?
Price products at a market price then control costs to be profitable
What is the margin of safety?
Measures the cushion between budgeted sales and break even sales
How do you calculate the margin of safety as a percentage?
Budgeted sales - break even sales/budgeted sales
What are limitations of the break even?
Selling price is constant, costs are linear, all CVP variables are within the relevant range
