FORMULA:

Basic Cost calculations and the contribution-Margin-Based Income Statement

A. Variable product cost per unit= Direct Materials + Direct Labor+ Variable Overhead
B. Selling Expense per unit= Price*variable selling expense (%)
C. Variable cost per unit= DM+DL+VOH+ Variable selling expense
D. Contribution margin per unit= Price- Variable cost per unit
( Price−Variable cost per unit)
E. Contribution margin ratio= or
Price
( Sales−Total Variable cost)
or
Sales
F. Total fixed expense= net of fixed expenses
Calculating the units needed to break even and to achieve a target profit
G. Operating Income= Sales Revenue- Variable expenses- Fixed Expenses or
(Price- Number of units)- (Variable cost per unit* Number of units)-
Total fixed cost
(Total ¿cost +Target Income)
H. Units for a target profit=
( Price−Variable cost per unit)
( Total ¿cost )
I. Break- even units=
( Price−Variable cost per unit )
Calculating Revenue for Break- even and for a Target Profit
J. Contribution margin per unit= Price- unit variable cost
( Price−Unit variable cost)
K. Contribution margin ratio=
Price
( Total¿ cost )
L. Break-even sales revenue=
Contributionmargin ratio
( Total¿ cost+Target profit )
M. Target sales revenue=
Contribution marginratio
Calculating the Number of Units to generate an After-Tax Target Profit

( After−tax Income )
N. Before-tax Income=
1−Tax rate
( Total¿ cost+Target profit )
O. Number of _____=
Price−Unit Variable cost

Calculating the Break-Even number of units in a Multiproduct Firm

P. Sales mix (in ratio)= price or product A: price of product B
( Total ¿cost )
Q. Break-even units=
Package Contribution margin
Calculating Margin of Safety
 R. Margin of safety= units to sell (expected to sell)- break-even units
S. Break-even sales= break-even units* cost per unit
T. Margin of safety= (Expected to sell in units* cost per unit)- Break-even sales
Calculating degree of operating leverage and percent change in profit

( Contribution Margin )
U. Degree of operating leverage (per process)=
Profit
V. Process A increase in profit percentage= Degree of operating leverage* percentage
W. Process A new profit (increase)= Profit+ Increase (decrease) in profit

Pro-forma of Contribution-Margin-Based Operating Income Statement

(Company Name)

Contribution-Margin-Based Operating Income Statement

For the year XXX

Total Per Unit

Sales (Price* Number of units) XXX XXX

Total Variable Expense (Variable cost

per unit * Number of units) (XXX) (XXX)

Total contribution margin XXX XXX

Total fixed expense (XXX)

Operating income XXX

Pro-forma of Income Statement taxes

(Company Name)

Contribution-Margin-Based Operating Income Statement

For the year XXX

Total Per Unit

Sales (Price* Number of units) XXX XXX

Total Variable Expense (Variable cost

per unit * Number of units) (XXX) (XXX)

Total contribution margin XXX XXX

Total fixed expense (XXX)

Operating income XXX

Income taxes (Before-tax Income* Tax Rate) (XXX)

Net Income XXX

Pro forma in Multiproduct

Unit
Unit variable UCM* Sales
Product Price contribution Sales mix
cost Mix
margin
Product A $XXX $XXX $XXX Ratio A: $XXX
Product B $XXX $XXX $XXX Ratio B $XXX
Package
contribution $XXX
margin

(Company Name)

Income Statement

For the year XXX

Product A Product B Total

Sales (Price* Number of units) XXX XXX XXX

Total Variable Expense (Variable cost

per unit * Number of units) (XXX) (XXX) (XXX)

Contribution margin XXX XXX XXX

Direct fixed expense (XXX) (XXX) (XXX)

Product Margin $XXX $XXX XXX

Common fixed expenses (XXX)

Net Income $0