 Contribution Margin per unit or marginal income per unit

This is the excess of unit selling price over unit variable costs and the amount each unit sold
contributes toward 1) covering fixed costs and 2) providing operating profits.

 CM per unit = Unit selling price - unit variable costs

Contribution Margin ratio

 CM ratio = Contribution Margin / Sales

 The CM ratio is very useful in that it shows how the contribution margin will be affected by a
given peso change in total sales. For instance, if a company's CM ratio is 40%, it means that for
each peso increase in sales, total contribution margin will increase by P0.40. Net income likewise
will increase by P0.40 assuming that there are no changes in fixed costs.

 The CM ratio is particularly valuable in those situations where the manager must make trade-offs
between change in selling price and change in variable costs.

4.3. The Contribution Margin Income Statement

The costs and expenses in the CM income statement are classified as to behavior (variable and
fixed). The amount of contribution margin, which is the difference between sales and variable costs,
is shown.
Sales (units x selling price) xx
Less: Variable Costs (units x variable cost per unit) xx
Contribution Margin xx
Less: Total Fixed Costs xx
Income before tax xx

4.4. CVP Analysis for Break-Even Planning, and Revenue, and Cost Planning

 Break-even Planning

The starting point in many business plans is to determine the break-even point.

 Break-even point is the level of sales volume where total revenues and total expenses are equal,
that is, there is neither profit or loss. This point can be determined by using CVP analysis.

 Break-even Point in Pesos = Fixed Cost / CM Ratio Break-even Point in Units = Fixed Cost / CM
per unit
 GROUP 5 (REPORT: PRICE STRUCTURE)

1. Is an approach in products and services pricing which defines various prices, discounts, offers
consistent with the organization goals and strategy? = Price Structure

2. They create a huge challenge for companies serving international market because distributors
in countries where prices are lower cross ship products to ones where prices are higher?
= Gray Market Sale

3. is simply impractical. It requires too much information and too much trust that the buyer will
actually report the information accurately? = Performance-based pricing

4-5. Give at least two types of Quantity Discount Tactics

= Volume Discounts = Order Discounts = Step Discounts = Two Part Prices