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Chapter 4

# ACC 406 Chapter Notes - Chapter 4: Fixed Cost, Variable Cost, Earnings Before Interest And Taxes

Department
Accounting
Course Code
ACC 406
Professor
Lili Ma
Chapter
4

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Chapter 4 Equations
Contribution Margin = Sales – Variable expense
Operating income = Contribution Margin – Fixed costs
Variable cost per unit = direct material + direct labour + variable overhead + variable selling
expenses
Total fixed expenses = Fixed overhead + Fixed selling & administrative expense
Break-Even unit = (Total fixed cost) / ( CM unit)
Break-Even sales= ( Total fixed expense) / (CM Ratio)
Variable cost ratio = Variable cost / Sales
CM ratio = CM / Sales
Number of units to earn target income= ( Fixed cost + target income) / ( CM per unit)
Sales dollars to earn target income = (Fixed cost + target income) / ( CM Ratio)
Margin of safety in units= sales in unit – break-even units
Margin of safety in sales dollar= (sales x sales in unit) – (sales x break-even units)
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