ACCT 2102 1nd Edition Lecture 10 Outline of Last Lecture II Contribution Margin III Unit Contribution Margin IV Contribution Margin Percentage V Breakeven Outline of Current Lecture VI Calculating Sales Revenue a Changes in Costs VIII MultiProduct Calculations Current Lecture Calculating Sales Revenue There is a shortcut formula to the original breakeven formula It tells us how much sales revenue is needed to breakeven or achieves a target profit The formula is the Sales Revenue time the Contribution Margin Percentage then minus Fixed Costs It can also be written as sales revenue equals Operating Income plus Fixed Costs all divided by the Contribution margin percentage This formula can be used to help solve isolated business decisions It allows companies to wonder what would happen if they changed this or that Cost Changes If variable costs increase then unit contribution margin decreases which means breakeven amounts increase If variable costs decrease then the exact opposite outputs happen If fixed costs increase then breakeven amounts increase If fixed costs decrease then breakeven amounts decrease If sales price increases then breakeven amounts decrease If sales price decreases then breakeven amounts increase MultiProduct Calculations 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 There are 3 steps in calculating the number of units to achieve Breakeven with a company that produces more than one product The first step is to find the weighted average Contribution Margin per unit This is where you take the unit CM and then multiply it by the Sales Mix The Sales Mix is the ratio of how much you expect to sale Once you multiply those two numbers then you divide that number by the total amount of units expected to sell The second step is to apply the breakeven formula using the weighted average CM per unit So in this case you would replace 0 with the operating income add the fixed cost and then divide by the weighted average CM The third step is to split the answer apart into the separate products using the assumed sales mix This is when you would take the number from the second step and then multiply it by the sales mix of whichever product you are trying to calculate and then divide it by the total amount expected to sell