Linear cost function:

Y= a + bX

Y is dependent variable

A is intercept or FIXED COSTS

B is slope or Variable Costs/unit

X is independent variable

Chapter 3:

The high-low method

Identify highest activity level UNITS and lowest activity level UNITS. Then, Highest UNITS – Lowest
UNITS

Identify highest activity level COSTS and lowest activity level COSTS. Then, Highest COSTS – Lowest
COSTS

unit variable costs = costs/units

Variable
Cost per = { Cost associated with
highest activity level - Cost associated with
lowest activity level }
Unit of Activity Highest activity level - Lowest activity level

Fixed costs = total cost – total variable costs

Take the highest activity level’s total cost and total units to solve for fixed costs

Multiple regression:

Y = a + b1X1 + b2X2
Chapter 4

Operating Income= Revenues – VC – FC

VC= VC per unit * Quantity

Contribution Margin= Sales – VC

Contribution Margin= CM per unit * Quantity sold

CM per unit = Sales Price – VC per unit

CM ratio= CM per unit/ sales price

Interpretation: how many cents out of every sales dollar are represented by Contribution Margin

Sales – VC – FC = OI

(SP * Q) – (VC per unit * Q) – FC = OI

Q (SP – VC per unit) – FC = OI

Q (CM per unit) – FC = OI

Breakeven Quantity = FC/CM per unit

Breakeven Sales= FC/ CM ratio

Breakeven Revenue= FC/ CM percentage

Quantity of Units required to be sold = (Fixed Costs + Target Operating Income)/ CM per Unit

Planned Sales= FC + Target Profit / CM

Total Revenues to earn target profit = (FC+ Target Profit)/ CM %age

Safety Margin (MOS) = Budgeted sales rev – Breakeven Rev

MOS ratio= Margin of safety / Budgeted Sales

Profit = Total Contribution – FC

CVP Analysis with Multiple Products:

BE Point = FC/ Weighted-average unit contribution margin

Operating Leverage= CM /Op Inc

Op Lev Factor = CM / Net Inc

Change in operating income that will result from a percentage change in sales is:

Operating Leverage X % Change in Sales

To earn a particular after-tax net income, a greater before-tax income will be required:

Target after-tax net income / 1-t = Before tax NI

OI x (1-Tax Rate) = NI

OI = NI / 1 – Tax rate