Accounting for managers equations

High low method for calculating variable costing Cost volume per unit

Change in cost / change in units

high low method calculating fixed cost

Fixed cost = total cost - variable cost (variable cost per unit * number of units)

Contribution margin

Total sales revenue - variable costs

(So what is left to contribute to covering fixed costs)

How to decide whether a change in fixed costs bring greater sales volume is worth it?

(Increase in units * contribution margin) - (increase in costs)

If the difference is positive net profit is positive and it’s worth doing if not it’s not worth doing.

what is break even point? Calculate it in units and sales:

Break even point is when fixed costs = contribution margin (so 0 profit is made as all contribution goes to fixed costs)

Break even units:

Fixed costs / unit contribution

Break even sales:

Fixed costs / CM ratio

How to find units needed for a target profit

Fixed costs + target profit / contribution margin

(Like break even equation which technically adds 0 to the numerator as the target profit)

What is margin of safety? calculate

Excess sales over break even point

Total sales - break even sales

Can be expressed as percentage

Margin of safety /total sales