Essay About Contribution Margin Ratio And C Fc

Accounting Review Sheet
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Variable Cost Behavior
When Activity:
When Activity:
Increases
Decreases
Total Variable Cost
Increases
Decreases
Variable Cost/ Unit
Stays Same
Stays Same
Fixed Cost Behavior
When Activity
Activity
Increases
Decreases
Total Fixed Cost
Stays Same
Stays Same
Fixed Cost per Unit
Decreases
Increases
Contribution Margin = Revenue – Variable Costs
Average Cost per Unit = Total Cost / Number of Units
Magnitude of
= Contribution Margin
Operating Leverage
Net Income
Break even volume in units= Fixed Cost / CM per unit ЩЦ ~Contribution Margin Ratio= CM / Sales ЩЦ ~Break Even Point= Fixed Cost / CM Ratio or Selling Price/Units*# Units Sold = [(VC/Unit*# Unit Sold) + Fixed Cost] ЩЦ ~To find how many units must be sold: Fixed Cost + Target Profit/ CM ЩЦ ~Profit= CM ÐЁC FC ЩЦ ~Margin of Safety= (Budgeted Sales ÐЁC Break Even Sales)/ Budgeted Sales

Profit (Net Income) = Sales ÐЁC Variable Costs ÐЁC Fixed Costs
Operating Leverage = CM / NI
Contribution Margin = Sales ÐЁC Variable Costs
Gross Margin = Sales ÐЁC COGS
Contribution Margin Ratio = CM / Sales
*Ratio represents portion of Sales to cover Fixed Costs*
High/Low Method = (High Cost ÐЁC Low Cost) / (High Units ÐЁC Low Units) = VC per unit
Margin of Safety = (Budgeted Sales ÐЁC Break Even Sales) / Budgeted Sales
Break Even = FC / CM
Net Income = Sales ÐЁC COGS ÐЁC All other Expenses
Purchases = Sales + EI ÐЁC Beginning Inventory
Horizontal Analysis ÐЁC study of the behavior of individual financial statement items over several accounting periods.
Vertical Analysis ÐЁC uses percentages to compare individual components of financial statements to a key statement figure.
*Balance Sheet – % of total assets* **Income Stmt – % of total sales**
Ratio Analysis ÐЁC involves studying various relationships between different items reported in a set of financial stmts
Liquidity Ratios: Working Capital, Current Ratio, Quick Ratio, Accounts Receivable Ratio, Inventory Ratio,
Solvency Ratios: Debt to assets ratio; Debt to equity ratio; Number of times interest earned ratio; Plant assets to long-term liabilities
Profitability Ratios: Net margin, Asset turnover, Return on Investment, Return on Equity
Stock Market Ratios: Earnings per share, Book value per share, Price-earnings ratio, Dividend yield
Current Assets = Cash, Accounts Receivable, Marketable Securities, Inventory
Unadjusted rate of return= cash inflow/(cost of inv/2)
Current Liabilities = Payables due w/in the next 12 months
Payback period= (cost of inv/annual cash inflow)
Quick Assets = Cash, Accounts Receivable, Marketable Securities
Internal rate of return(IRR)= (cost of inv/annual cash inflows); look up PV value on table
Working Capital = Current Assets – Current Liabilities
Net PV= PV of future cash flows ÐЁC cost of inv.
Return on inv(roi)=OI/sales(margin) x sales/OA(turnover); OI/OA; OA * ROI=OI
Current Ratio = Current Assets / Current Liabilities
Return on Equity = Net Income / Ave. Total StockholderÐÐŽÐЇs Equity
Quick Ratio = Quick Assets / Current Liabilities
Debt to Equity Ratio = Total Liabilities / Total Equity
Inventory Turnover = COGS / Ave. Inventory
Residual income=oi-(oa * desired roi)
PV of future cash flows= cash inflow * PV factor
Increase in sales: ROI * investment=OI => (OI=sales increase amt * sales)
PV w/ taxes = 1. revenue ÐЁC depr= taxable income 2. taxable income * tax rate =taxes 3. taxable income ÐЁC taxes = net income 4. NI + depr = cash inflows 5. Cash inflows * PV factor= ? 6. ? ÐЁC cost of asset

Selling price per unit: 1. OI=ROI * OA 2. OI=(Sales Volume (n)) ÐЁC fixed ÐЁC variable
Cost of units transferred out: 1.Transfer units *100% 2. ending inv * %completed 3. Add 1. and 2. 4. all other costs/ 3 answer= cost per unit 5. cpu * 2

The process product costing system distributes costs evenly across total production
T-charts: Cash, Raw Mat. WIP, Manufacturing OH, Common Stock, Revenue, COGS, SG&A
Depreciation on Manufacturing equip is added to Manufacturing OH.
Return on Investment (ROI) = Margin (OI / Sales) * Turnover (Sales / OA)
Residual Income = [OI ÐЁC (OA * Desired ROI)]
PV of Future Cash Flows = Cash inflow * PV factor
Net Present Value = PV of future cash flows ÐЁC cost of investment
Internal Rate of Return = cost of the investment / annual cash inflow = PV value **Look up PV value