Contribution Margin Income Statement

Selling Price SP = $ 10.00 Breakeven Analysis (BE)

Variable Cost of Manufacturing VC = $ 4.00 Revenue = Cost
Variable selling expense VSE = $ 2.00 PXQ = VC X Q + FC
Variable administration expense VAE = $ 1.00 0 = Revenue - Cost
Total variable cost/expense TVE = $ 7.00 0 = PXQ - VC X Q - FC
Contribution margin CM = $ 3.00 FC = Q X (P - VC)
Contribution margin ratio CM% = 30% FC/(P - VC) = Q
FC/CM = Q (BE)
TVE% = 70% Q (BE) X P = $ Sales (BE)
FC/CM% = $ Sales (BE) 0 = CM% X Sales - FC
FC/CM% = $ Sales (BE)
If we produce and sell 1000 units Q (BE) = 500
$ (BE) = $ 5,000
Sales $ 10,000
VCOGS $ 4,000 Proof ← Proof FC/CM% $ 5,000
VSE $ 2,000 Sales $ 5,000.00
VAE $ 1,000 TVC $ 3,500.00
CM $ 3,000 CM $ 1,500.00
Fixed manufacturing expense FMOH $ 1,000 FMOH $ 1,000
Fixed selling and administartion expense FS&AE $ 500 FS&AE $ 500
Net operating income NOI $ 1,500 NOI $ -

Operating Leverage (OL) Profit

OL = CM/NOI
OL = 2.0 Profit = CM% X Sales - FC
That means if sales increase by (let`s say) 30% NOI will increase by 60%

Proof Sales $ 13,000 Profit = $ 2,400.00

VCOGS $ 5,200
VSE $ 2,600 $ Target Profit Sales = (TP+FC)/CM%
VAE $ 1,300 ← = $ 13,000
CM $ 3,900
FMOH $ 1,000 Q Target Profit Sales = (TP+FC)/CM (per unit)
FS&AE $ 500 ← = 1300
NOI increase $ 2,400 NOI $ 2,400 $ Margin of Safety = $ Sales - $ (BE)
Q Margin of Safety = Q Sales - Q (BE)
← $MS = $ 8,000.00
Sales mix: PPS 95 QMS = 800
Sales mix $ (BE) = CFC/CCM%
CFC: Common FC, CCM: Common Contribution Margin
Price: $4,000 Price: $4,000
VC: $1,200 VC: $1,200
FC: $134,400 FC: $134,400
Profit: ($22,400) Profit: $0
Volume: 40 Volume: 48