Breakeven number of units = total fixed costs divided by Unit contribution margin
Breakeven point in dollars = breakeven number of units x unit selling price
Contribution margin Ratio = contribution margin divided by Sales
Contribution margin Ratio = Unit contribution margin divided by selling price
Contribution margin = Revenues minus variable costs
Contribution margin at the breakeven point is = Total fixed costs
Breakeven point in dollars = total fixed costs divided by contribution margin Ratio
CVP analysis (cost volume profit) is essentially sensitivity analysis
Assumes costs are linear, all costs are fixed or var, all units sell, no other factors, constant sales mix
Breakeven can be calculated by mathematical equation, contribution margin, or CVP graph:
Find required sales using this formula (either in sales dollars or in sales units):
Required Sales – Variable Costs – Fixed Costs = Target net Income
Required Sales = (Fixed Costs + Target Net Income) / Unit Contribution Margin
Margin of Safety = Expected Sales – Breakeven Sales
Margin of Safety can be calculated in dollars or as a ratio
Margin of Safety Ratio is Margin of Safety divided by Expected Sales