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Cost Volume Profit Analysis and Pricing Decisions

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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 calc... ulated 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 [Show More]

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