Professional Documents
Culture Documents
Formula
Breakeven
o Units=TFC/CM Per unit(SP per unit-VC per unit )
o $$$=TFC/CM RATIO
o CM RATIO =CM perunit/SP per unit x100%
o CM Ratio = Total CM /Total Sales x100%
Target NI
o Units = TFC+Target+ NI/CM perunit
o $$$=TFC+Target+NI/CM Ratio
o CM RATIO =CM perunit/SP per unit x100%
o CM Ratio = Total CM /Total Sales x100%
Margin of Safety
o Units= Actual or budgeted sales (units)- Breakeven units
o $$ =Actual or budgeted sales ($) Breakeven ($)
o Margin of safety %= MOS (units or $)/ Budgeted or actual
sales(unitsor$) x100%
VC %, CM %
o VC=TVC/Sales x100
o CM Ratio = Total CM /Total Sales x100%
o CM ratio + VC ratio = 100%
4.break even is based on only one product.limitation is that but a few firms
produce only one product.
Capital Budgeting
Calculate Value of Initial Investment
o Cost of project +Installation-Proceeds from disposal of existing
asset +/- taxes on sale of assets
Calculate annual net cash flows
o Net Income + Depreciation OR Total Cash Flow
Regular budgeting
Objectives of budgeting
o
o
o
o
o
o
o
DM Price Variance
(MPV)AQ purchased (AP-SP)
DM Efficiency Variance (MEV)
(AQ used x SP)-(SQ allowed xSP)
SP(AQ used-SQ Allowed (sq per unitxActual units produced))
o Bad buying
o substitution of materials of a different type or grade
DM Usage
o Defective materials, due to bad buying, use of wrong grade or type,
deterioration.
o Excessive scrap due to insufficient use, like insufficiency of workers,
incorrect setting of machinery, defectives machinery
o Theft of materials
o Errors in the recording of quantities
o Rework of defective production