ACCT 2102 1nd Edition Lecture 9 Outline of Last Lecture II Test Outline of Current Lecture III Contribution Margin IV Unit Contribution Margin V Contribution Margin Percentage VI Breakeven Current Lecture Contribution Margin Contribution margin is the amount available to cover foxed costs and the amount remaining to generate or provide operating income It s formula is the excess of sales revenue minus the total variable cost It can be used anywhere for planning decision making and controlling It also gives the cost behavior information for different activity levels The income statement formula for the contribution margin is like the income statement for operating income that we ve used for all previous chapters This formula s the Sales revenue minus the variable cost minus the fixed cost is operating income Another way to look at the formula is simply the Contribution margin minus fixed costs Unit Contribution Margin The formula for unit contribution margin is the Sales price minus the unit variable cost This is a better representative of cost behavior because it takes into account variable costs that are period costs Contribution Margin Percentage These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute This percentage is useful for when a company has a lot of different products The percentage allows each product to have a different Contribution margin per unit The formula is the unit contribution margin divided by the sales price You can also use this formula to find the variable cost percentage Just subtract the Contribution margin percentage from 100 This works because variable costs and contribution margin percentages should always equal to 100 percent Breakeven Some companies want to be able to predict their level of sales They want to find the minimum amount of products they have to sell in order to breakeven so that they can know how much to sell in order to make a profit The formula for Breakeven or Target Profit is the Contribution Margin Sales Price Variable Costs Fixed Costs Operating Income If you are trying to find the breakeven point then replace operating income with 0 If you are trying to find the amount of units to sell for a target profit of some number then replace operating income with that target number