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Chapter 4

ACC 406 Chapter Notes - Chapter 4: Net Income, Variable Cost, Fixed Cost


Department
Accounting
Course Code
ACC 406
Professor
Anthony Chan
Chapter
4

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Chapter 4: Cost Volume: Profit Analysis
Income = Revenue Costs
Revenue = (Price) (Volume) Total Fixed Cost (Variable cost per unit) (Volume)
Breakeven Situation:
Ø = (Price) (Volume) Total Fixed Cost (Variable cost per unit) (Volume)
(Price/Volume) = Total Fixed Cost + (Variable Cost per unit) (volume)
The Contribution Approach:
Revenue (in dollars) = Fixed Cost + Profit / Contribution Margin Ratio
Contribution Margin Ratio = Contribution Margin/ Revenues
Contribution Margin = Revenue Variable Cost
Contribution Format Income Statement (based on variable costing) vs. Traditional format (based on
Absorption)
Contribution Format Income Statement:
Revenue
Less: Variable Cost
Contribution Margin
Less: Fixed Cost
Net Income
Traditional Format:
Revenue
Less: COGS
Gross: Margin
Less: Operating
Net income
Revenue (in units) = Fixed Cost + Profit / Contribution Margin ratio
BEP (in units) = FC/ CM per unit
Rev VC = Fixed Cost + Income
Rev VC FC = Income
Rev Costs = Income
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