Managerial Accounting: Chapter 5

Variable expense ratio

variable expenses/sales

CM ratio

contribution margin/sales aka sales-variable expenses/sales

CM unit ratio

Contribution margin per unit/selling price per unit

Profit

(CM ratio times sales) - fixed expenses

Contribution income statement

sales-variable expenses= CM - fixed expenses = NOI

Degree of operating leverage

contribution margin/NOI

operating leverage def

measure of how sensitive noi is to percentage changes in sales

Percent increase in sales

percent increase in sales times degree of operating leverage

Break even def

point at which total cost and total revenue are equal

Unit sales to break even

fixed expenses/unit cm

break even dollar sales

fixed expenses/cm ratio

margin of safety def

excess of budgeted or actual sales dollars over the break-even volume of sales dollars it is the amount by which sales can drop before losses are incurred

Margin of safety in dollars

total sales- break even sales

unit sales to attain the target profit

target profit+ fixed expenses/cm per unit

dollar sales to attain the target profit

target profit + fixed expenses/ CM ratio