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    Ch. 1 - Formula

    Uploaded by

    Ken Kens
    This document outlines formulas for calculating key metrics used in contribution margin-based income statements, including: 1) Variable and total costs per unit, contribution margin per unit, and contribution margin ratio. 2) Units and sales revenue needed to break even or achieve a target profit. 3) Number of units to generate an after-tax target profit. 4) Break-even units in a multiproduct firm based on sales mix. 5) Margin of safety calculations. Formulas are provided for pro forma contribution margin-based income statements for a single and multiproduct company.

    Copyright:

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

    Ch. 1 - Formula

    Uploaded by

    Ken Kens
    8 views3 pages
    This document outlines formulas for calculating key metrics used in contribution margin-based income statements, including: 1) Variable and total costs per unit, contribution margin per unit, and contribution margin ratio. 2) Units and sales revenue needed to break even or achieve a target profit. 3) Number of units to generate an after-tax target profit. 4) Break-even units in a multiproduct firm based on sales mix. 5) Margin of safety calculations. Formulas are provided for pro forma contribution margin-based income statements for a single and multiproduct company.

    Original Description:

    Strategic Cost Management Formula Chapter 1

    Original Title

    Ch. 1- Formula

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    © © All Rights Reserved

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    This document outlines formulas for calculating key metrics used in contribution margin-based income statements, including: 1) Variable and total costs per unit, contribution margin per unit, and contribution margin ratio. 2) Units and sales revenue needed to break even or achieve a target profit. 3) Number of units to generate an after-tax target profit. 4) Break-even units in a multiproduct firm based on sales mix. 5) Margin of safety calculations. Formulas are provided for pro forma contribution margin-based income statements for a single and multiproduct company.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    8 views3 pages

    Ch. 1 - Formula

    Uploaded by

    Ken Kens
    This document outlines formulas for calculating key metrics used in contribution margin-based income statements, including: 1) Variable and total costs per unit, contribution margin per unit, and contribution margin ratio. 2) Units and sales revenue needed to break even or achieve a target profit. 3) Number of units to generate an after-tax target profit. 4) Break-even units in a multiproduct firm based on sales mix. 5) Margin of safety calculations. Formulas are provided for pro forma contribution margin-based income statements for a single and multiproduct company.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    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

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