Cost volume and profit relationships

[Explanations]

Learning objectives:

  • Compute and explain contribution margin and contribution margin ratio (CM ratio).
  • Prepare contribution margin income statement.
  • Compute break-even point of a single and a multiproduct company. Explain the importance of break-even point figure for a business.
  • Explain sales mix. How does a change in sales mix impact contribution margin, break-even point and net operating income of a business?
  • Compute and explain margin of safety for a business.
  • Find out the sales volume required to earn a certain amount of profit (target profit analysis).

Number of pages: 8;
Approximate time required: 2.5 – 3 hours

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