chapter 5

Contribution margin ratio is calculated as the

unit contribution margin divided by sales price per unit

Total contribution margin in dollars divided by pretax income is the

degree of operating leverage

The sales level at which a company neither earns a profit nor incurs a loss is the

break even point.

Total Cost

Fixed Costs + Variable Costs

CM (contribution margin)

Sales price per unit - total variable cost per unit

BEP Units

Fixed costs/Contribution margin per unit

Degree of Operating Leverage

Total CM (in Dollars)/Pretax Income

Pre-Tax Income

(Sales-variable costs) - variable costs