Week of September 20th-22nd Notes
Week of September 20th-22nd Notes Acct 2210- 001
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Acct 2210- 001
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This 2 page Class Notes was uploaded by Callisa Ruschmeyer on Thursday September 22, 2016. The Class Notes belongs to Acct 2210- 001 at Auburn University taught by Mr. Fetsch in Fall 2016. Since its upload, it has received 6 views. For similar materials see Managerial Accounting in Accounting at Auburn University.
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Date Created: 09/22/16
September 20 -22 Notes Continuation of Chapter 5 Variable Expense Ratio Ratio = total variable expenses / total sales Ratio in a single product analysis = variable expense per unit by unit selling price Break-even Analysis Break-even in Unit Sales o Equation Method Profits of $0 = Unit CM x Q - fixed expenses Basically, solve for Q o Formula Method Unit sales to break even = fixed expenses / CM per unit Solving for units (Q) with division Break-even in Dollar Sales o Equation method Profits of $0 = CM ratio X sales - fixed expenses Solve for sales using CM ratio (which is a percent) o Formula Method Dollar sales to break even = fixed expenses / CM ratio Solving for sales with division Target Profit Analysis Target Profit using Units o Equation Method Profit = Unit CM X Q - fixed expenses Q = the number of units that need to be sold to reach the target profit o Formula Method Unit sales to attain the target profit = (target profit + fixed expenses) / CM per unit Target Profits using Sales o Equation Method Profit = CM ratio X Sales - fixed expenses o Formula Method Dollar sales to attain the target profit = (target profit + fixed expenses) / CM ratio The Concept of Sales Mix Sales mix is the relative proportion in which a company's products are sold Different products have different selling prices, cost structures, and contribution margins When a company sells more than one product, break-even analysis becomes more complex September 20 -22 Notes Continuation of Chapter 5 *** LO-7 and LO-8 can be ignored *** LO-7: Operating Leverage o Cost structure refers to the relative proportion of fixed and variable costs in an organization Managers often have some latitude in determining their organization's cost structure o There are advantages and disadvantages to high fixed cost (or low variable cost) and low fixed cost (or high variable cost) structures An advantage of a high fixed cost structure is that income will be higher in good years compared to companies with lower proportion of fixed costs A disadvantage of a high fixed cost structure is that income will be lower in bad years compared to companies with lower proportion of fixed costs LO-8: Computing operating leverage at a particular level of sales o Sales commission is also discussed with a few brief slides in the PowerPoint
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