305 Chapter 6

Question 1

How do you write the CVP Statement?

Answer 1

Sales
- Variable Costs
= Contribution Margin
- Fixed Cost
= Operating Income

Question 2

What is the formula for calculating the contribution margin per unit?

Answer 2

1. CMU = Selling Price - Variable Cost
2. CMU = Total contribution margin / Units Sold

Question 3

What is the formula for calculating the contribution margin ratio?

Answer 3

1. CMR = CMU / Selling Price
2. CMR = Total CM / Sales Dollars

Question 4

What is the formula for calculating the Target Sales in Units and in Sales?

Answer 4

1. TSU = Fixed Cost + Net Income before Tax / Contribution Margin per
   Unit
2. TSU = Fixed Cost + Net Income before Tax / Contribution Margin Ratio

Question 5

What is the formula for calculating the Margin of Safety in Units and in Sales and Ratio?

Answer 5

1. MOSU = Unit Sales - BEU
2. MOS$ = Sale $ - BE$
3. MOSR = Sales $ - BE $ / Sales $

Question 6

What are the Operating Leverage steps?

Answer 6

1. Find degree of operating leverage: DOL = Total contribution leverage / Operating Income
2. Find the increase or decrease in operating income: Change in operating income = DOL * % Change in sales

Question 7

What is the formula for calculating the weighted average breakeven/target sales in units and $?

Answer 7

WABEU = Fixed Cost + Net Income Before Tax / (SM 1 * CMU 1) + (SM 2 * CMU 2)… ect.
WABE$ = Fixed Cost + Net Income Before Tax / (SM 1 * CMUR 1)… ect.

Question 8

What are the Problem Solving steps for CVP analysis?

Answer 8

Step 1) Separate Variable and Fixed Costs

Step 2) Find contribution Margin per unit -> CM Ration

Step 3) Find BE or TS

Step 4) Margin of Safety or Operating Leverage