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ARA CVP analysis calculation formula
Accounting Reports And Analysis (University of Melbourne)
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Sales revenue
less Variable costs = contribution margin
less Fixed costs= Profit / (Loss)
Alternatively: Selling price /unit - Variable cost/ unit= Contribution margin per unit
(CMU)
When contribution margin > fixed costs =>profit
When contribution margin < fixed costs =>loss
When contribution margin = fixed costs =>break even point (total revenue across
total cost)
o Total sale = fixed cost plus profit
Contribution Margin Ratio: CM per unit
Selling price per unit
Breakeven point (in units) =
Contribution Margin ratio =
Fixed costs
Contribution margin per unit
CM per unit
Selling price per unit
Breakeven point (in $ Sales) =
Fixed costs
Contribution margin ratio
Sales volume (units) = Fixed costs + Desired profit before tax
to earn desired profit.
Contribution margin per unit
Margin of Safety = Expected sales volume - Break‐even volume
Expected volume of sales
• It’s is the excess of expected revenue above the break even point
• Weighted average contribution margin = CMU1x sales mix rario1
Sales Mix Ratio & WACM
need to consider: ➢ Weighted average contribution margin for each product; AND
➢ How much of each product we have
★ Sales Mix Ratio: volume of sales for each product
total volume
★ WACM per unit: ∑ (sales mix ratio for product) * (respective CMU for product)
★ Break-even volume of units:
Fixed costs
WACM per unit
★ Desired profit (multiple products): Fixed costs + desired profit
WACM per unit
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