key equations

What is the formula for Break-Even Point (in units)?

Break-Even Units = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)

What is the formula for Break-Even Point (in sales revenue)?

Break-Even Sales = Fixed Costs / Contribution Margin Ratio

What is the formula for Contribution Margin per unit?

Contribution Margin = Selling Price per Unit - Variable Cost per Unit

What is the formula for Contribution Margin Ratio?

Contribution Margin Ratio = Contribution Margin / Selling Price

What is the formula for Target Profit (in units)?

Units for Target Profit = (Fixed Costs + Target Profit) / Contribution Margin per Unit

What is the formula for Total Cost?

Total Cost = Fixed Costs + (Variable Cost per Unit × Units Produced)

What is the formula for Full (Absorption) Cost?

Full Cost = Direct Materials + Direct Labor + Variable Overhead + Fixed Overhead

What is a relevant cost?

A cost that differs between alternatives and affects the decision (ignores sunk costs and common fixed costs).

What is the formula for Incremental Cost?

Incremental Cost = Cost of Option A - Cost of Option B

What is an opportunity cost?

The benefit of the next best alternative that is foregone when a decision is made.