《Survey of accounting 2th会计学 Carl S.Warren》ch11.pptVIP

1. Total sales and total costs can be represented by straight lines. 2. Within the relevant range of operating activity, the efficiency of operations does not change. 3. Costs can be accurately divided into fixed and variable components. 4. The sales mix is constant. 5. There is no change in the inventory quantities during the period. Compute the margin of safety and the operating leverage, and explain how managers use these concepts. 6 Learning Objective Margin of Safety Sales – Sales at break-even point Sales Dollars Units Sales $250,000 10,000 Break-even sales 200,000 8,000 Excess $ 50,000 2,000 Margin of Safety Sales – Sales at break-even point Sales Dollars Units A Sales $250,000 10,000 Break-even sales 200,000 8,000 Excess $ 50,000 2,000 Actual sales level. Margin of Safety Sales – Sales at break-even point Sales Dollars Units A B Sales $250,000 10,000 Break-even sales 200,000 8,000 Excess $ 50,000 2,000 Margin of safety B/A Excess of actual sales over the break-even sales. What is the margin of safety as a percentage? Margin of Safety Sales – Sales at break-even point Sales Margin of safety indicates the decrease in sales that may occur before an operating loss results. Dollars Units A B Sales $250,000 10,000 Break-even sales 200,000 8,000 Excess $ 50,000 2,000 Margin of safety B/A 20% Margin of safety expressed in units. Operating Leverage Contribution margin Operating income Sales $400,000 $400,000 Variable costs 300,000 300,000 Contribution margin $100,000 $100,000 Fixed costs 80,000 50,000 Income from operations $20,000 $ 50,000 Jones Inc. Wilson Inc. Operating leverage is a measure of the relative mix of variable costs and fixed costs. Operating Leverage Contribution margin Operating income Sales $400,000 $400,000 Variable costs 300,000 300,000 Contribution margin $100,000 $100,000 Fixed costs 80,000 50,000 Income from operations $20,000 $ 50,000 Jones Inc. Wilson Inc. A Operating leverage is a measure of the rela