1. Calculate the breakeven point in units and sales dollars. (Unit 3.1)
The breakeven point is the level of sales at which sales revenue equals total expense and profit
is $0. This point can be calculated in terms of u
...
1. Calculate the breakeven point in units and sales dollars. (Unit 3.1)
The breakeven point is the level of sales at which sales revenue equals total expense and profit
is $0. This point can be calculated in terms of units or sales revenue using either the profit
equation or the contribution margin formula, as follows:
SPx−VCx−FC=0
Total
¿ expenses ¿ =Breakeven point ∈units Contribution margin perunit
¿ expenses
¿
Total
=Breakeven point ∈sales dollars
Contribution marginratio
2. Calculate the level of activity required to meet a target income. (Unit 3.2)
To calculate the sales level required to meet a certain level of operating income, use one of the
following formulas. If you are working with a target level of net income, divide it by (1 minus
the tax rate) to convert it to operating income before using one of the formulas.
SPx−VCx−FC=Target OI
Total
¿ expenses+Target operating income ¿
Contribution margin perunit =Breakeven point ∈units
Total
¿ expenses+Target operating income ¿ =Breakeven point ∈sales dollars
Contribution margin ratio
3. Determine the effects of changes in sales price, cost, and volume on operating
income. (Unit 3.2)
Using the following equations, you should be able to solve for any unknown factors that would
help in evaluating the financial impact of certain managerial decisions.
Revenue− Expenses=Operatingincome
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