Acc 222 Exam #2

CM per unit formula & meaning

What is 1 more unit worth?

= p-v

CMR formula

What 1 more sales dollar is worth?

= (p-v) / p

Total cm formula & meaning

Is there enough to cover fixed costs?

= (p * x) - (v * x)

total sales formula

= p * x

total variable cost

= v * x

Variable cost ratio (VCR)

= v/p

Breakeven formula

x = F / (p-v)

in units = F / cm per unit

in dollars = F / cmr

Target Profit

x = (profit + F) / cm per unit

margin of safety formula & meaning

Quantifies how much our sales can decline before the co. starts to lose money

MS= total savings - breakeven sales

how many units we can lose before a co. loses money = margin of safety / sales price per unit

Degree of Leverage

= cm / NOI

percent change in NOI

= percent change in sales * DOL

absorption costing

• traditional

• product vs. period

sales

(COGS): DM, DL, VMOH, FMOH

= gross margin

(SG&A): FSG&A, VSG&A

= NOI

Variable costing

• contribution margin

• cost behavior (fixed vs. variable)

Sales

(all variable costs): DM, DL, VMOH, VSG&A

= cm

(all fixed costs): FMOH, FSG&A

= NOI

what is the key difference between absorption and fixed costing?

absorption: VMOH per unit

variable: VMOH in total

“rule” for absorption vs. fixed costs

• if production > sold, absorption will be larger because FMOH will go to inventory

• is production < sold, variable will be larger because FMOH will be used from last quarter

variable unit product cost

= Total variable cost (DM, DL, VMOH) / # of units produced

segment margin

= segment cm - traceable fixed costs

segment breakeven

in units: segment fixed costs / cm per unit

in dollars: traceable fixed costs / cmr

product cost

= DM + DL + MOH

customer cost

= orders + support + shipping

customer margin

= sales - product cost - customer cost