ACC 628 Final Review

Contribution Margin per Unit

Price - Variable Cost per Unit

Contribution Margin Ratio

Contribution Margin per Unit / Price

Total Contribution Margin / Sales

Variable Cost Ratio

1 - Contribution Margin Ratio

Break-Even Units

Fixed Costs / Contribution Margin per Unit

Break-Even Dollars

Fixed Costs / Contribution Margin Ratio

Pre-Tax Profit Required

After-Tax Profit / (1 - Tax Rate)

Margin of Safety (MOS)

Sales (actual or target) - Break-Even Sales

Margin of Safety % (MOS%)

Margin of Safety / Sales Figure

Degree of Operating Leverage (DOL)

Contribution Margin / Operating Income

1 / Margin of Safely % (MOS%)

Change in Operating Leverage

Degree of Operating Leverage * Percent Change in Sales

Indifference Point by Units

Set the two profit equations equal and solve for Q

Indifference Point by Dollars

Set them equal using CM ratios and solve for S

Weighted-Average Contribution Margin

Sum of (Unit Mix Proportion * Contribution Margin per Unit)

Weighted-Average Contribution Margin Ratio

Contribution Margin per Bundle / Revenue per Bundle

Multiproduct Break-Even

Fixed Costs / Weighted-Average Contribution Margin

Segment Margin

Contribution Margin - Direct (Avoidable) Fixed Costs of that Segment

Contribution Margin per Unit of Constraint

Contribution Margin per Unit / Units of the Constraint Each Product Consumes

Future Value of a Single Amount

Amount * (1 + r)ⁿ

Present Value of a Single Amount

Amount * PV Factor

Where the factor is 1 / (1 + r)ⁿ

Present Value of an Annuity

Equal Annual Amount * Annuity Factor

Annuity Factor

The single-sum factors for those periods, added together

Net Present Value

PV of all Inflows - PV of all Outflows

Profitability Index

Present Value of Inflows / Initial Investment

Unequal Lives

Divide each NPV by the annuity factor for its own life, at the required rate, and compare per year

Return on Investment (ROI)

Operating Income / Average Invested Capital

Return on Sales * Investment Turnover

Return on Sales (ROS)

Operating Income / Sales

Investment Turnover

Sales / Average Invested Capital

Residual Income

Operating Income - (Required Rate * Average Invested Capital)

Capital Charge

Required Rate * Average Invested Capital

After-Tax Cost of Debt

Before Tax Rate * (1 - Tax Rate)

Weighted Average Cost of Capital (WACC)

Sum of each source’s weight * after tax cost

Economic Value Added (EVA)

After Tax Operating Income - [WACC * (Assets - Liabilities)]

Payback

Equal Flows: Initial Investment / Annual Net Cash Inflow

Unequal Flows: Accumulate until the investment is recovered, then take the fraction

Accounting Rate of Return (ARR)

Average Annual Operating Income / Initial Investment

Average Annual Operating Income / Average Investment

Average Annual Operating Income

Average Annual Cash Inflow - Annual Depreciation

Straight-Line Depreciation

(Cost - Residual Value) / Useful Life

Average Investment (the other denominator)

(Initial Investment + Residual Value) / 2

Internal Rate of Return (IRR)

The discount rate at which NPV equals zero

IRR with Equal Flows

Annuity Factor = Investment / Annual Inflow

IRR with Unequal Flows

Bracket one positive and one negative NPV, then lower rate + [positive / (positive + absolute negative)] * the rate gap