All right, let's do some questions on cost volume profit or break even analysis.
It says that the break even point, the contribution margin equals.
Break even, let's come over here.
Sales minus variable cost is contribution minus fixed profit.
A break even, that means this number has to equal this number.
That means contribution margin equals what?
Your fixed cost, okay?
Variable cost, sales revenue, fixed cost, D. Number twelve, break even analysis assumes
that over the relevant range, unit revenues are non-linear?
No.
In other words, most things are linear.
Unit variable costs are unchanged, true.
Remember, within the relevant range, fixed are fixed in total variable fixed per unit.
Total costs are unchanged, no.
Total fixed costs are non-linear.
No, they're linear.
In other words, fixed cost are aligned.
Linear is aligned, they're going straight out, fixed.
Variable costs are pretty much aligned at an angle, but at a slope.
What's the best answer?
Unit variable costs are unchanged.
Yes, the unit per hour, because we're within the relevant range, we're fixed for fixed,
variable at fixed per unit.
Thirteen, DelCo has fixed cost of 100 and break even sales of 800.
What is the projected profit of a million, two in sales?
Hmm, so now we've got to come up with our...
Let's kind of see here.
They're saying, fixed costs are 100.
Break even is 800.
So, that means break even sales is 800.
So, what we need to do is come up with our what?
Our CM ratio.
So, if we come up with our CM ratio, then what we can do is use that, plug it in to
figure out how many... sales, what's it say?
It says, what is the projected profit at a million, two?
So, we've got to figure out what our profit is, all right.
So, this one's a little tricky.
It looks like it's using this formula.
So, let's clean this up a little bit and start there.
Let's start with what we know and what they've told us.
All right, so what do we know so far?
We know that break even and sales dollars, 800 equals fixed cost, over something, a CM
ratio.
So, what that tells us is one over something is 800.
Or if we multiply this by cm ratio, that goes here, divide this by 800, that goes here.
So, CM ratio is one over eight, which equals something like point one two five.
Twelve and a half percent.
Okay, so now, if we were to say break even in sales, but we want to have a profit.
And what it says is, what is the profit at a million two in sales?
A million two in sales.
All right, well, we know that we have fixed costs of 100.
So, let's set this up.
We're going to have fixed costs of 100.
We have a CM ratio that we just figured out is point one two five, And know that break
even in sales dollars, well, it's not break even, it's going to be at a million two equals
a hundred plus x, profit, over one point two five.
Huh?
Let's see what we did.
Up here, they gave us this.
They said, break even at a hundred fixed is 800,000 sales.
That gives us this is what?
Point one two five.
The CM ratio's not changing.
So, for this formula, CM ratio point one two five, good to know, they told us that a million
two, you're going to have this plus profit.
What is our profit at a million two?
Well, we're going to end up with solving for X is...
We end up with 150 equals 100 plus X, subtract that over.
50 equals X.
So, they're saying, what is the profit?
Taking this, multiply each side times point one two five, boom.
Multiply this times point one two five, which I don't have a calculator on me.
That is going to equal a hundred plus X.
So, I guess that must equal 150, there we go.
That's gone, so 150 equals 100 plus X.
Minus X, minus 100, minus 100.
X equals 50.
And if you plug it in, 100 plus 50 divided by point one two five, should equal one million
two.