HM 351 Chapter Notes - Chapter 3: Fixed Cost, Variable Cost
31 Oct 2018
School
Department
Course
Professor
Document Summary
Sales = cost of sales + cost of labor + cost of overhead + profit. Sales = variable cost + fixed cost + profit. P = profit: within the normal range of business operations, the relationship between variable costs and sales remains relatively constant. The relationship is a ratio normally as a percentage or decimal. In contrast, fixed costs ted to remain constant in dollar terms, regardless of change in dollar sales volume. The relationship of fixed costs and sales changes as sale volume increases or decreases: once acceptable levels are determined for costs, they must be controlled if the operation is profitable. Contribution rate = 1 vr: meeting fixed costs, providing profit. Be = break-even point point at which sum of all costs is equal to sales; profit is zero. Contribution margin = selling price variable cost of the item. Be in customers = fixed costs/ average contribution margin.
