CVP formulas Flashcards
what is the formula for operating income for cvp?
sales - variable cost - fixed cost = operating income
what is the formula for contribution margin
unit selling price - unit variable cost
what does the contribution margin show?
for every item sold, the company will have $xx to cover its fixed costs and contribute to net income
What is the formula for Contribution Margin ratio?
CM/ unit divided by unit selling price = CMR
How is CM shown?
in dollar amounts
How is CMR shown?
%
what does CMR show
it means that for example 40% or .40 of each sales dollar can be applied to fixed costs and contribute to operating income
What are the 3 ways to determine breakeven point?
- mathematical equation
- calculate using CM
- derived form a CVP graph (not doing)
what is the mathematical formula for breakeven
sales = VCx + FC + 0 (operating income)
- solve for x
- shows units required to breakeven
How do you find the sales dollars required to breakeven?
units sold at breakeven x SP per unit
What is the formula to find the breakeven point in units using CM
- Breakeven in units = FC/CM
What is the formula to find the breakeven point in sales dollars using CM
FC/ CMratio = Breakeven in dollars
- this means every dollar of sales generates (ex. .40 )to pay off FC
Why is the target operating income before tax useful
- shows the sales the company needs in order to make the specific level of income
what are the 3 ways to show target operating income
- mathematical equation
- CM technicque
- Graph
What is the mathematical formula for target operating income
VCx + FC - Target OI = Required sales
SPx = VCx to FC to P
= units required
