ACG2071 Chapter 5 (Principles of Managerial Accounting)

Variable costs are costs that increase or decrease in total in direct proportion to increases or decreases in the volume of activity.

Fixed costs are costs that do not change in total over wide ranges of volume of activity.

Costs that have both variable and fixed components are called mixed costs. For example, Smart Touch Learning’s sales representatives earn a salary plus commissions on sales.

Find the "Total Maintenance Cost" (Idk what this exactly means, they don't really explain.

Total Maintenance Cost = (Maintenance cost per unit x number of units) + Total Fixed Costs

Step 1: Put in the data (ex, 360 costs \$1,630, 415 costs \$,1935).

Step 2: Find the Slope-intercept form, (y = 2.1792x + 936.76

Step 3: The 2.1792 is the variable cost, the x is the amount of units, and the 936.76 is the fixed cost.

The range of volume where the total fixed costs and the variable costs PER UNIT remain constant.

So, at 0-2,000 tablets, the company can operate with the same staff, equipment and factory. This keeps the same varibale cost PER UNIT and total fixed costs the same.

But, at >2,001 tablets, they need to get more staff and factoyr and equipment, which increases the variable costs PER UNIT and total fixed costs.

Contribution margin = Total Net Sales Revenue - Total Variable Costs

Unit Contribution Margin = Net Sales Revenue per unit - Variable Costs per unit

The breakeven point is the sales level at which the company does not earn a profit or incur a loss but has an operating income of zero.

There are three methods to find the breakeven point

1. Equation Method
2. Contribution margin approach

3. Contribution margin ratio approach

(IMPORTANT: Can also use the "target profit" to put in whatever target profit you want, and not just the break-even point of \$0)

Used to the find the "required sales in units"

Used to the find the "required sales in dollar"

Operating leverage: measures how much a company's profit changes when its sales volume change.

"The degree of operating leverage for Company A is 2.50. This means that the percentage change in operating income will be 2.50 times the percentage change in sales. For Company B, the percentage change in sales will have a lesser effect on operating income at 1.25 times the change."

Its basically the combination of products that makeup total sales


"For example, assume Cool Cat Furniture sold 6,000 cat beds and 4,000 scratching posts during the past year. The sales mix of 6,000 cat beds and 4,000 scratching posts creates a ratio of 6,000/10,000 or 60% cat beds and 4,000/10,000 or 40% scratching posts. You could also convert this to the least common ratio, as 6/10 is the same as 3/5 cat beds and 4/10 is the same as 2/5 scratching posts.

So, we say the sales mix is 3:2, or for every three cat beds sold, Cool Cat Furniture expects to sell two scratching posts.
"

Use the 'weighted-average contribution margin per unit' you found in step 1