ACC 406 Lecture Notes - Lecture 4: Root Mean Square, Variable Cost, Operating Leverage

• School: Ryerson University
• Department: Accounting
• Course: ACC 406
• Professor: Maurizio Di Maio

Document Summary

Acc406 chapter 4: cost-volume-pro t analysis: a managerial tool. For two products, there are two prices and two variable costs per unit. The variable cost per unit is derived from the income statement. For the mulching mower, total variable costs are ,000 based on sales of 1,200 units, yielding a per-unit variable cost of (= ,00011,200). For the riding mower, total variable costs are ,000 based on sales of 800 units, yielding a per-unit variable cost of. Then, the mulching mower has a contribution margin per unit of (= - ); the riding mower has a contribu- tion margin per unit of (= - ). It is sometimes possible to substitute xed costs for variable costs. As variable costs decrease, the unit contribution margin increases, making the contribution of each unit sold that much greater. In such a case, uctuations in sales have a magni ed e ect on pro tability.