CHAPTER 5 STUDY GUIDE
CHAPTER 5 STUDY GUIDE ACCT 202
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This 4 page Study Guide was uploaded by Tre' Brandon on Monday October 12, 2015. The Study Guide belongs to ACCT 202 at Old Dominion University taught by ROBERT M CROMICH in Fall 2015. Since its upload, it has received 103 views. For similar materials see PRIN OF MANAGERIAL ACCOUNTING in Accounting at Old Dominion University.
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Date Created: 10/12/15
CHAPTER 5 STUDY GUIDE Alvin Brandon This chapter will consist primarily of applying equations to concepts that we have already learned to understand new information about our accounting process such as contribution margin target pro t analysis breakeven analysis etc CONTRIBUTION MARGIN First we have contribution margin the amount remaining from sales after variable costs have been deducted in other words the amount to cover xed costs whatever remains afterwards is your pro t Pro t SalesVariable Costs Fixed Costs In this equation Sales Variable Costs Contribution Margin which from now on will be referred to as CM CM is a portion of Sales the rest consisting of Variable Costs To nd the portion of Sales that is in the CM we must get the CM Ratio CM Ratio Contribution Margin Sales This ratio either aggregated monetary value or mt pr39ce Total Contribution Mardin CM Ratio 40 000 40 Total Sales 100000 CM Ratio Unit Contribution Margin 40 100 Unit Selling Price 250 Due to Cl irectly proportional it keeps a consistent ratio relal nges A repres x A in Sales TARGET PROFIT ANALYSIS Target pro t analysis used to estimate what sales volume is needed to achieve a speci c target pro t This can be calculated using two different methods the equation method and formula method Equation Method Pro t given Unit CM x Q Fixed Expense You will be solving for Q here 40000 100 x Q 35000 40000 35000 100 x Q 75000 100 x Q 750 Q An example from the book is performed a Formula Method Unit1 Sales to attain the target Target PrO t FiXEd Expense UthM Another exam 40000 35000 100 Q 750 BREAKEVEI Breakeven analysis a special type of target pro t analysis where the pro t is 0 Unit Sales to break e 0 Fixed Expenses UthM You break even because you have no pro t and you are just trying to make enough to account for your expenses To get dollar sales use CM Ratio rather than Unit CM MARGIN OF SAFETY The margin of safety the excess of sales dollars over the breakeven point volume of sales dollars The best way to explain it is the amount by which sales can drop before losses are incurred Margin of Safety in dollars Total budgeted or actual sales Breakeven sales Margin of Safety Margin of safety in Total budgeted or actual sales in dollars Sales at the curl 100000 87500 Margin of Safety in 12500 Margin of Safety will be 125 OPERATING LEVERAGE Operating Leverage a measure at a given level of sales of how a percentage A in sales volume will affect quot fj39t Contribution Margn Degree 0f Operating Lever Net Operating Income CONTINUED ON THE NEXT PAGE 40000 BogSIde Fari 10000 Sterling Fan 70 000 10000 Percentage Leverage x A in Sales Bogside Far income 4 x 10 40 Sterling Fari income 7 x 10 70 Which means the incomes of Bogside and Sterling will increase by the respective percentages above SALES MIX Sales mix the relative proportions in which a company39s products are sold The goal is to achieve the most pro table combination An example for a DVD company called Virtual Journeys Unlimited Breakeven Point and its computation Fixed Expenses CM Ratio for the Total Overall CM Ratio 045 portion Le Louvre DVD Amount Percent Sales Variable 20000 Expenses 100 CM 15000 Fixed Expenses 75 Net Operating 5 000 Income 25 27000 60000 Amount Percent 80000 100 40000 m 40 000 M Notice you must get the Le Vin DVD amount rather than a Amount Percent 100000 100 55000 M 45000 m 27 000 18 000 Unit1 This is interchangeable with Dollars meaning the equation will be the same but it will be in Dollars rather than Units For dollars you must use the CM Ratio rather than the Unit CM
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