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Week of September 20th-22nd Notes

by: Callisa Ruschmeyer

Week of September 20th-22nd Notes Acct 2210- 001

Marketplace > Auburn University > Accounting > Acct 2210- 001 > Week of September 20th 22nd Notes
Callisa Ruschmeyer
GPA 4.0

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Continuation of Chapter 5 Using Contribution Margin to find Break-even point and Profits Do not need to know Lo-7 or LO-8
Managerial Accounting
Mr. Fetsch
Class Notes
Managerial Accounting Notes, fetsch, Chapter, 5, contribution margin
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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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