CVP formulas

Question 1

what is the formula for operating income for cvp?

Answer 1

sales - variable cost - fixed cost = operating income

Question 2

what is the formula for contribution margin

Answer 2

unit selling price - unit variable cost

Question 3

what does the contribution margin show?

Answer 3

for every item sold, the company will have $xx to cover its fixed costs and contribute to net income

Question 4

What is the formula for Contribution Margin ratio?

Answer 4

CM/ unit divided by unit selling price = CMR

Question 5

How is CM shown?

Answer 5

in dollar amounts

Question 6

How is CMR shown?

Answer 6

%

Question 7

what does CMR show

Answer 7

it means that for example 40% or .40 of each sales dollar can be applied to fixed costs and contribute to operating income

Question 8

What are the 3 ways to determine breakeven point?

Answer 8

1. mathematical equation
2. calculate using CM
3. derived form a CVP graph (not doing)

Question 9

what is the mathematical formula for breakeven

Answer 9

sales = VCx + FC + 0 (operating income)

• solve for x
• shows units required to breakeven

Question 10

How do you find the sales dollars required to breakeven?

Answer 10

units sold at breakeven x SP per unit

Question 11

What is the formula to find the breakeven point in units using CM

Answer 11

1. Breakeven in units = FC/CM

Question 12

What is the formula to find the breakeven point in sales dollars using CM

Answer 12

FC/ CMratio = Breakeven in dollars

- this means every dollar of sales generates (ex. .40 )to pay off FC

Question 13

Why is the target operating income before tax useful

Answer 13

• shows the sales the company needs in order to make the specific level of income

Question 14

what are the 3 ways to show target operating income

Answer 14

1. mathematical equation
2. CM technicque
3. Graph

Question 15

What is the mathematical formula for target operating income

Answer 15

VCx + FC - Target OI = Required sales

SPx = VCx to FC to P
= units required

Question 16

What is the CM technique to find target operating income to find units required

Answer 16

FC + P /CM = units required

Question 17

What is the CM technique to find target operating income in dollars

Answer 17

FC + P /CM ratio = required sales in dollars

Question 18

What is the formula for target operating income after tax

Answer 18

operating income x (1-tax rate) *** require more info

Question 19

What is the formula for margin of safety in dollars

Answer 19

Actual (expected) sales - breakeven sales = Margin of safety in dollars

Question 20

what is the formula for margin of safety shown as a percentage

Answer 20

margin of safety in dollars / actual (expected sales) = margin in safety % or ratio