MGMT 30B Lecture Notes - Lecture 8: Contribution Margin, Variable Cost, Income Statement

• School: UC-Irvine
• Department: Management
• Course: MGMT 30B
• Professor: Machiavelli Chao

Document Summary

Helps managers understand how profits are affected by: (a. 1. a. i) (a. 1. a. ii) (a. 1. a. iii) (a. 1. a. iv) Uses contribution margin format income statement to judge impact. Total fixed costs on profits of changes (a. 1. c) Contribution margin: amount of total sales needed to cover fixed costs and provide profit. Contribution margin ($) = sales (selling price x (a. 2. a. i) Units sold) variable expenses (units sold x total variable expenses) (a. 2. a. ii) Margin (selling price per unit variable expenses per unit) x. Variable expenses per unit (a. 2. a. iv) its own manufacturing costs maybe they reduce the variable costs. Helps manager determine if the product is covering. Unit contribution margin = sales price per unit - If there is a product that doesn"t cover its costs, (a. 2. b) Contribution margin ratio: used to show how the contribution margin will be affected if there is a change in sales. Break even point: helps determine required level of sales where. Break even point (where profit = 0) = (unit profit will be 0 (a. 2. c. i)