Page 13 - PowerPoint Presentation

RECAP

Cost Terms And Concepts

• The contribution ratio indicates the percentage of

sales available to cover fixed costs. Once ALL fixed

costs are covered, each additional unit sold

increases net profit by the amount of the

contribution per unit.

• The breakeven point is the point where the total

contribution is equal to total fixed costs (the point

where profit is zero).

• The margin of safety is the excess of budgeted (or

actual) sales over the breakeven sales, that is, the

amount or percentage by which sales revenue may

decline before losses commence.

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