1. CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 15-3 Decisions That Affect Net Income

2. CENTURY 21 ACCOUNTING © Thomson/South-Western 2 LESSON 15-3 Contribution Margin Rate Required Contribution Margin Sales Dollars ÷= $22,500.00 ÷ = $150,000.00.15 or 15% Planned Net Income Total Fixed Costs Required Contribution Margin += $21,000.00 + = $22,500.00$1,500.00 CALCULATING SALES TO EARN PLANNED NET INCOME page 455

3. CENTURY 21 ACCOUNTING © Thomson/South-Western 3 LESSON 15-3 EFFECT OF VOLUME CHANGES ON NET INCOME page 456

4. CENTURY 21 ACCOUNTING © Thomson/South-Western 4 LESSON 15-3 EFFECT OF COST CHANGES AT AVERAGE VOLUME page 457

5. CENTURY 21 ACCOUNTING © Thomson/South-Western 5 LESSON 15-3 EFFECT OF COST CHANGES AT ABOVE AVERAGE VOLUME page 458

6. CENTURY 21 ACCOUNTING © Thomson/South-Western 6 LESSON 15-3 1. Contribution margin rate, Alternative 1. 2. Contribution margin rate, Alternative 2. EFFECT OF CHANGES IN COSTS ON CONTRIBUTION MARGIN RATE page 458 12

7. CENTURY 21 ACCOUNTING © Thomson/South-Western 7 LESSON 15-3 New Contribution Margin per Unit Contribution Margin Unit Sales Required to Maintain Planned Net Income ÷= $22,500.00÷=45,000 units $0.50 EFFECT OF CHANGE IN SALES PRICE page 459

8. CENTURY 21 ACCOUNTING © Thomson/South-Western 8 LESSON 15-3 USING BREAKEVEN TO PLAN SALES MIX page 460 Product Sales÷Net Sales=Sales Mix Television$52,500.00÷$75,000.00=70% VCR$22,500.00÷$75,000.00=30%

9. CENTURY 21 ACCOUNTING © Thomson/South-Western 9 LESSON 15-3 Contribution Margin Rate Contribution MarginNet Sales ÷= USING BREAKEVEN TO PLAN SALES MIX page 460.40 or 40%$30,000.00 ÷ $75,000.00 = $85,000.00$34,000.00 ÷.40 or 40% = Total Sales Dollars Required Contribution Margin Contribution Margin Rate ÷= $34,000.00$24,000.00 + $10,000.00 = Required Contribution Margin Total Fixed Costs Planned Net Income +=

10. CENTURY 21 ACCOUNTING © Thomson/South-Western 10 LESSON 15-3 Product Sales Dollars Sales Mix Total Sales Dollars ×= USING BREAKEVEN TO PLAN SALES MIX page 460 Product Unit Sales Product Sales Dollars Unit Sales Price ÷= Television 170 units$59,500.00 ÷ $350.00 = 102 units$25,500.00 ÷ $250.00 = VCR Television $59,500.0070% × $85,000.00 = $25,500.0030% × $85,000.00 = VCR

11. CENTURY 21 ACCOUNTING © Thomson/South-Western 11 LESSON 15-3 TERM REVIEW sales mix page 462