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    This document introduces cost-volume-profit analysis and laws of contribution margin. It was introduced by Dalia Omar in Section 2. The laws define contribution margin, contribution margin per unit, contribution margin ratio, break-even points in units and dollars, and formulas for calculating target profits and unit sales needed to achieve those profits. An example is provided to demonstrate calculating these values for a company with given sales, variable costs, fixed costs, and target profit. It shows the contribution margin per unit is $6, contribution margin ratio is 40%, break-even points are 4,000 units and $60,000 in sales, and 7,333 units must be sold to attain a $20,000 profit.

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    Managerial and aid accounting

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    Management and social

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    This document introduces cost-volume-profit analysis and laws of contribution margin. It was introduced by Dalia Omar in Section 2. The laws define contribution margin, contribution margin per unit, contribution margin ratio, break-even points in units and dollars, and formulas for calculating target profits and unit sales needed to achieve those profits. An example is provided to demonstrate calculating these values for a company with given sales, variable costs, fixed costs, and target profit. It shows the contribution margin per unit is $6, contribution margin ratio is 40%, break-even points are 4,000 units and $60,000 in sales, and 7,333 units must be sold to attain a $20,000 profit.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    Download as pdf or txt
    3 views4 pages

    Management and Social

    Uploaded by

    ali202101
    This document introduces cost-volume-profit analysis and laws of contribution margin. It was introduced by Dalia Omar in Section 2. The laws define contribution margin, contribution margin per unit, contribution margin ratio, break-even points in units and dollars, and formulas for calculating target profits and unit sales needed to achieve those profits. An example is provided to demonstrate calculating these values for a company with given sales, variable costs, fixed costs, and target profit. It shows the contribution margin per unit is $6, contribution margin ratio is 40%, break-even points are 4,000 units and $60,000 in sales, and 7,333 units must be sold to attain a $20,000 profit.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 4

    Dalia Omar

    Section No.2

    Managerial Accounting Principles

    cost volume profit analysis

    Introduced by

    ak-Even Dalia Omar

    Point and Cos


    Volume- Profit
    Section 2- Dalia Omar

    Laws:
    1. Contribution Margin (CM) = sales revenue – Total variable costs
    2. Contribution Margin per unit (CM/u) = selling price – variable cost
    per unit
    3. Contribution Margin Ratio (CM %)
    = Contribution Margin / sales revenue
    = (sales revenue – Total variable costs) / sales revenue
    = Contribution Margin per unit / selling price
    = (selling price – variable cost per unit) / selling price
    4. Break-Even in Units = Total Fixed Costs / Contribution Margin
    per unit
    5. Break-Even in Dollars = Total Fixed Costs / Contribution Margin
    Ratio
    6. Target profit in Unit sale to attain target profit = (Total Fixed Costs
    + target profit) / Contribution Margin per unit
    7. Target profit in Dollar sale to attain target profit = (Total Fixed
    Costs + target profit) / Contribution Margin Ratio

    2
    Section 2- Dalia Omar

    Example 1
    XYZ company sells a single product. The selling price is $15 per unit and
    the variable cost is $9 per unit. The income statement of the company is
    given below: -

    Net sales (4500) 67,500


    (-) variable cost (40,500)
    = contribution margin 27,000
    (-) fixed cost (24,000)
    = net income 3,000

    Required: -
    1. Compute the contribution margin per unit?
    2. Compute the contribution margin ratio?
    3. Compute break-even point in sales dollar?
    4. Compute break-even point in unit sold?
    5. How many units must be sold next year to attain 20,000 profits?

    Solution

    • Contribution Margin per unit (CM/u) = selling price – variable cost


    per unit = 15 – 9= 6 / unit
    • Contribution Margin Ratio (CM %) = Contribution Margin / sales
    revenue = 27,000 / 67,500 = 40%
    • Break-Even in dollar = Total Fixed Costs / CM % = 24,000 / 0.4 =
    $60,000
    • Break-Even in Units = Total Fixed Costs / CM per unit = 24,000 /
    6= 4,000 unit
    • Target profit in Unit sale to attain target profit = (Total Fixed Costs
    + target profit) / Contribution Margin per unit = (24,000 + 20,000)
    / 6 = 7,333 unit

    3
    Section 2- Dalia Omar

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