# BEC - Formulas 4

 Profitability Index PV of net future cash inflow / PV of net initial investment Payback Period Net initial investment /annual net after-tax cash flow Internal Rate of Return (IRR). Accept vs Reject levels are... Net incremental investment / net annual cash flowsAccept when IRR > Hurdle rate; otherwise reject. Contribution Ratio Contribution Margin / Revenues Breakeven Point in Units Total fixed costs / Contribution Margin per unit = # units Breakeven Point in Dollars (1) Use the breakeven point in units x price per unit = Total Sales(Total fixed costs / contribution margin per unit) x price per unit OR(2) Total fixed costs / contribution margin ratio Breakeven Point in Units formula to ensure a certain amount of profit (fixed costs + pretax profit) / contribution margin per unit Both formulas for Breakeven Point in Dollars to ensure a certain amount of profit Sales Dollars = (fixed costs + pretax profit) / Contribution margin ratio ORSales Dollars = total variable costs + fixed costs + pretax profit, where total variable costs = variable cost/unit x # units. Set a selling price based on an assumed number of units sold Sales price per unit = (fixed costs + total variable costs + pretax profit) / assumed number of units sold, wheretotal variable cost = VCost per unit x assumed number of units sold. Margin of Safety The excess of sales over breakeven sales (aka the pretax profit or net operating income)Margin of safety (dollars) = total sales - breakeven dollars. Margin of Safety Percentage Margin of safety (dollars) / total sales Target Costing Target cost = market price - required profit(Can use totals or per unit amounts) AuthorBethM ID331239 Card SetBEC - Formulas 4 DescriptionBecker Review Updated2017-05-09T17:04:04Z Show Answers