45 Putting It Together: Cost Volume Profit Analysis

Wow! This chapter included a ton of awesome information to help you figure out net profit, contribution margin, fixed costs and how product mix can affect your net profit.

You also learned the importance of changes in income, and how, due to operating leverage, can have a huge affect on net profit.

The breakdown between types of cost structures is helpful when trying to make decisions between variable and fixed costs. It becomes especially important when planning a potential automation system that involves a large capital investment.

So to review, here are the basic formulas we have discussed in this module:

Profit=(Salesvariable expenses)Fixed Expenses

Contribution Margin=SalesVariable expenses

Contribution margin ratio=Contribution margin/sales

Unit sales to break-even=fixed expenses/unit contribution margin

Dollar sales to break-even=Unit sales×selling price

Margin of safety in dollars=total budgeted or actual salesbreak-even sales

Margin of safety percentage=margin of safety in dollars/total budgeted or actual sales

Degree of operating leverage=contribution margin/net operating income

% Change in net operating income=degree of operating leverage×% change in sales

Note how many interconnect, to give you different information. Make sure to make note of these formulas to help you figure out selling prices and profitability!

 

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Business Finance Copyright © by Nicolet College and Ellen Mathein is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

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