Formula Fun
Sales - Variable Costs
Contribution Margin
The level of business operations at which revenues and expired costs are equal.
Break Even Point
An accounting device used to plan and control resources of operational departments and divisions.
Budget
The area of accounting concerned with the effect of alternative courses of action on revenues and costs.
Differential Analysis
Contribution Margin - Fixed Costs
Income from Operations
Fixed Costs / Unit Contribution Margin
Breakeven Sales (Units)
The percentage of each sales dollar that is available to cover the fixed costs and provide an operating income.
Contribution Margin Ratio
One of the major elements of the income statement budget that indicates the quantity of estimated sales and the expected unit selling price.
Sales Budget
The difference between the differential revenue and the differential costs.
Differential Income (Loss)
Fixed Costs / Contribution Margin Ratio
Breakeven sales (Dollars)
Contribution Margin / Income from Operations
Operating Leverage
The manner in which a cost changes in relation to its activity base (driver).
Cost Behavior
Budget that estimates direct labor hours and related cost needed to support budgeted production.
Direct Labor Cost Budget
The amount of income forgone from an alternative to a proposed use of cash or its equivalent.
Opportunity Cost
Sales Price Per Unit - Variable Cost Per Unit
Unit Contribution Margin
Percent Change in sales x Operating Leverage
Percent Change in income from operations
The relative distribution of sales among the various products available for sale.
Sales Mix
A condition that occurs when individual objectives conflict with organizational objectives.
Goal Conflict
A cost that is not affected by subsequent decisions.
Sunk Cost
Sales - Sales at Breakeven
Margin of Safety (Dollars)
(Sales - Sales at Break Even) / Sales
Margin of Safety (%)
A measure of the relative mix of a business’s variable costs and fixed costs, computed as contribution margin divided by income from operations.
Operating Leverage
A concept of budgeting that requires all levels of management to start from zero and estimate budget data as if there had been no previous activities in their units.
Zero Based Budgeting
Discontinuing a Product: The costs of the product consist of $20,000 fixed costs and $15,000 variable costs. The variable operating expenses related to the product total $4,000. What is the differential cost of discontinuing the product
$19,000
($15,000 + $4,000)
Sales - Variable Costs - Fixed Costs
Income from Operations