ACC 406 Lecture Notes - Lecture 3: Contribution Margin, Gross Margin, Total Absorption Costing

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18 Apr 2017
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Decisions about: price, revenues, costs, volume, profit, sales mix. Breakeven situation: 0=(price)(volume)-tfc-(variable cost per unit)(volume, (price)(volume)= tfc+(vc per unit)(volume) The contribution approach: revenues in dollars= fc + profit contribution ratio contribution ratio or contribution margin ratio: = contribution margin. Revenues: contribution margin = revenue- variable cost. Less: cost of goods sold can be separated into variable cogs or fixed cogs. Revenue in units= fc+ profit / contribution margin per unit. Bep in terms or dollars= fc/contribution ratio. Bep in terms of units= fc/ contribution margin per unit. Proving that the basic equation is the income equation. Margin of safety = current sales performance- break even sales. Used to measure how far sales can go down before you have a loss. Break even sales is the minimum you have to achieve: if you achieve break even you don"t make profit or lose money. Current performance may be better than min requirement the difference between the two will be the margin.

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