710_C16

point of zero profit

• operating income approach
• contribution margin approach

• income or profit before income taxes
• Net Income / (1 - Tax Rate)

operating income - income taxes

direct materials + direct labor + variable overhead

direct materials + direct labor + variable overhead + variable selling expense

price - variable cost per unit (DM/DL/VO/VSE)

contribution margin (price-variable cost per unit) / price OR (sales - total variable cost) / sales

Total fixed cost / (price - variable cost per unit)

at the break even point

sales revenue - total variable costs

fixed costs / unit contribution margin

divide unit contribution margin into the target profit and add result to break even volume

contribution margin ratio (1 = contribution margin ratio + variable cost ratio)

total fixed costs / contribution margin ratio

Sales/Variable Expenses/Contribution Margin/Direct Fixed Expenses/Product margin ---Separate

Common Fixed Expenses subtracted from total to get Operating income

fixed cost that can be traced to each segment and can be avoided if that segment doesn't exist

not traced to any segment and exist even if segment eliminated (senior management plant overhead etc)

relative combination of products being sold. Can be ratio or % of total revenue

portrays the relationship between profits and sales volume.

operating income equation (OI = (price x units) - (unit variable cost x units) - fixed costs)

relationship among cost volume and profits. graph total revenue line and total cost line.

revenue = price x units

total cost = (unit variable cost x units) + fixed costs

linear revenue function and linear cost function

price, total fixed costs, and unit variable costs can be accurately identified and remain constant over the relevant range

what is produced is sold

sales mix is known for multiple product analysis

selling prices and costs are assumed to be known with certainty

units sold or expected to be sold or revenue earned or expected to be earned above break even volume

use of fixed costs to extract higher peercentage changes in profits as sales activity changes

total contribution margin / profit

higher = more risk