342 GR 3

contribution margin

sales - variable costs

contribution margin per unit

selling price per unit - variable costs per unit

degree of operating leverage

contribution margin / income

fixed costs

•Total fixed costs do not change as volume changes.

•Unit fixed costs decreases as volume increases.

variable costs

•Total variable costs change in proportion to volume changes.

•Unit variable costs stay the same as volume changes.

mixed variable

•Mixed costs include both fixed and variable cost components.

•Mixed costs is greater than zero when volume is zero (fixed component) and increases steadily in proportion to increases in volume (variable component.

unit sales for target income

fixed costs + target income / contribution margin per unit

margin of safety

expected sales - break even sales / expected sales

break-even point in units

fixed costs/ contribution margin per unit

break even in dollars

fixed costs / contribution margin ratio

Margin of safety (in dollars)

1. Break-even point in units = $245,000 / $50 = 4,900 units

   Sales at expected level (6,200 × $118)	$ 731,600
   Sales at break-even level (4,900 × $118)	578,200
   Margin of safety (in dollars)	$ 153,400

weighted-average contribution margin

contribution margin per unit product 1 x % sales product 1 + contribution margin per unit product 2 x % sales product 2