Cvp Analysis

Question 0

What does cm$ show

Answer 0

For every item sold, the company will have $200 to cover fixed costs and co tribute to operating income

Question 1

Formula to calculate contribution margin in $

Answer 1

Unit selling price - variable costs = CM per unit in dollars

$500 - $300 = $200 / unit

Question 2

What is the formula to calculate CM ratio

Answer 2

CM per unit / Unit selling price =. CM ratio as a %

Question 3

What does the CM ratio show?

Answer 3

It means that 0.40 of each sales dollar can be applied to fixed costs and contribute to operating income

Question 4

What is the CM ratio good for?

Answer 4

Very helpful in determining the effects of changes in sales on operating income.

If sales increase by $100,000 operating income will increase by $40,000 (100,000 x 40 %)