1. AMIS 310 Foundations of Accounting
Chapter 12 Module 5
CHAPTER 1 MODULE 1
AMIS 310 Foundations of Accounting
Professor Marc Smith

2. Chapter 12 Module 5: Example #3
a. Contribution margin per unit =
= $5.20
● This means that for every unit sold, $5.20 of the
selling price is available to pay fixed costs and
contribute toward a profit
b. Contribution margin ratio =
÷ = %
● This means that for every unit sold, 20.8% of the

3. Chapter 12 Module 5: C-V-P Analysis
Cost-Volume-Profit Analysis is a way of determining how revenues, costs, and profits behave (change) as the volume of activity changes
Typical starting point in a CVP analysis:
find the break-even point

4. Chapter 12 Module 5: Break-Even Point
The break-even point is the point where:
● no profit is earned (or loss incurred)
● Sales = Variable Costs + Fixed Costs
QUESTION: Why would a company be
interested in the break-even
point?

5. Chapter 12 Module 5: Break-Even Point
ANSWER: It aids in decision-making by giving
managers a minimum target revenue
as well as providing some insight
as to the viability of offering a new
product or entering a new market
The break-even point (in units) represents the number
of units that must be sold to ‘break-even’

6. Chapter 12 Module 5: Break-Even Point (units)
Sales revenues
– Variable costs
– Fixed costs
= Net income
NOTES:
1. Sales revenues = selling price per unit x number of units
2. Variable costs = variable cost per unit x number of units
3. At the break-even point, net income = 0

7. Chapter 12 Module 5: Example #3
c Break Even in Units
0 = ($25 x Units) – ($19.80 x Units) – $468,000
0 = ($5.20 x Units) – $468,000
($5.20 x Units) = $468,000
Units = 90,000
Proof
Sales (90,000 $25) $2,250,000
Less: Variable costs 1,782,000
Contribution margin $468,000
Less: Fixed costs ,000
Net income $

8. Contribution margin per unit
Chapter 12 Module 5: Example #3
Alternative formula to calculate the break-even point in units:
Contribution margin per unit
Number of units =
Total Fixed costs
$468, ÷ $ = ,000 units

9. Chapter 12 Module 5: Break-Even Point
QUESTION: If the company sells 90,001 units,
will it earn a profit or incur a loss
and how much?
ANSWER: It will earn a profit
$  CM per unit

10. Chapter 12 Module 5: Break-Even Point
QUESTION: If the company sells 89,998 units,
will it earn a profit or incur a loss
and how much?
ANSWER: It will incur a loss
$  (CM per unit x 2)