ACCTMIS 2300 Lecture Notes - Lecture 2: Contribution Margin, Operating Leverage, Fixed Cost

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Contribution margin: represent amount of reve(cid:374)ue to a) b) Helps managers understand relationships among costs, volume, and profit. Focus o(cid:374) i(cid:374)teractio(cid:374)s a(cid:373)o(cid:374)g a) b) c) d) Allows for business decisions: a) b) c) d) Total cm = sales revenue - variable costs. Contribution margin per unit = selling price per unit - variable costs per unit. Cm ratio = cm / sales revenue = cm per unit / selling price per unit. Sales revenue = variable costs + fixed costs. B-e point is number of units sold in order to. Sales revenue - variable costs - fixed costs. Same basic equation as break even, just changing the net income b) Measure of how sensitive the net income is to the percent change in sales. Degree of ol = contribution margin / net. Measure at any given level of sale, how change in sales volume impacts net. 10) change in sales volume impacts net income.

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