MGMT 30B Study Guide - Midterm Guide: Accounts Payable, Financial Statement, Contribution Margin
26 Feb 2016
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Purposes: (a) helps managers understand how profits are affected by: sales prices, sales volume, variable cost per unit, total fixed costs (b) uses contribution margin format income statement to judge impact on profits of changes (c) Formulas: (a) contribution margin: amount of total sales needed to cover fixed costs and provide profit. Contribution margin ($) = sales (selling price x units sold) variable expenses (units sold x total variable expenses) Contribution margin ($) = unit contribution margin (selling price per unit variable expenses per unit) x quantity sold (i) (ii) (iii) unit contribution margin = sales price per unit - variable expenses per unit (iv) benefits for managers. Helps manager determine if the product is covering its own manufacturing costs. If there is a product that doesn"t cover its costs, maybe they reduce the variable costs (b) contribution margin ratio: used to show how the contribution margin will be affected if there is a change in sales.
