2.6 Chapter Summary
Key Concepts
 2.1 CostVolumeProfit Terminology
 The different types of costs.
 How to determine the unit variable cost.
 Explanation of breakeven analysis.
 2.2 Revenue and Cost Functions
 Calculating the net income using the revenue and cost functions.
 Calculating the breakeven point using the revenue and cost functions.
 2.3 Contribution Margin
 Calculating the contribution margin.
 Calculating the net income using the contribution margin.
 Calculating the breakeven point using the contribution margin.
 2.4 Contribution Rate
 Calculating the contribution rate.
 Calculating the net income using the contribution rate.
 Calculating the breakeven revenue using the contribution rate.
Glossary of Terms
 BreakEven Analysis. An analysis of the relationship between costs, revenues, and net income with the sole purpose of determining the point at which total revenue equals total cost.
 BreakEven Point. A quantity that represents the level of output (in units or dollars) at which all costs are paid but no profits are earned, resulting in a net income equal to zero.
 Contribution Margin. The amount each unit sold adds to the net income of the business.
 Contribution Rate. A contribution margin expressed as a percentage of the selling price.
 Cost. An outlay of money required to produce, acquire, or maintain a product, which includes both physical goods and services.
 Economies of Scale. The principle that, as production levels rise, perunit variable costs tend to become lower as efficiencies are achieved.
 Fixed Cost. A cost that does not change with the level of production or sales.
 Net Income. The amount of money left over after all costs are deducted from all revenues.
 Selling Price. The amount the business charges its customers to purchase one unit of an item produced.
 Total Cost. The sum of all costs for the company, including both the total fixed costs and total variable costs.
 Total Fixed Cost. The sum of all fixed costs that a business incurs.
 Total Revenue. The entire amount of money received by a company for selling its product, calculated by multiplying the quantity sold by the selling price.
 Total Variable Cost. The sum of all variable costs that a business incurs at a particular level of output.
 Unit Variable Cost. The assignment of total variable costs on a perunit basis.
 Variable Cost. A cost that changes with the level of production or sales.
Formulas

Symbols Used
 [latex]CM[/latex] = contribution margin
 [latex]CR[/latex] = contribution rate
 [latex]NI[/latex] = net income
 [latex]S[/latex] = selling price per unit
 [latex]FC[/latex] = fixed costs
 [latex]TC[/latex] = total cost
 [latex]TR[/latex] = total revenue
 [latex]TVC[/latex] = total variable cost
 [latex]VC[/latex] = variable cost per unit
 [latex]x[/latex] = number of units

Formulas Used
 Unit Variable Cost: [latex]\displaystyle{VC=\frac{TVC}{x}}[/latex]
 Total Costs: [latex]\displaystyle{TC=FC+VC \times x}[/latex]
 Total Revenue: [latex]\displaystyle{TR=S \times x}[/latex]
 Net Income: [latex]\displaystyle{NI=S\times x(FC+VC \times x)}[/latex]
 Contribution Margin: [latex]\displaystyle{CM=SVC}[/latex]
 Net Income: [latex]\displaystyle{NI=CM \times xFC}[/latex]
 Number of Units Sold: [latex]\displaystyle{\mbox{Number of Units Sold}=\frac{FC+NI}{CM}}[/latex]
 BreakEven Point: [latex]\displaystyle{\mbox{BreakEven Point}=\frac{FC}{CM}}[/latex]
 Contribution Rate: [latex]\displaystyle{CR=\frac{CM}{S} \times 100\%}[/latex]
 Contribution Rate: [latex]\displaystyle{CR=\frac{TRTVC}{TR} \times 100\%}[/latex]
 Total Revenue: [latex]\displaystyle{TR=\frac{FC+NI}{CR}}[/latex]
 BreakEven Revenue: [latex]\displaystyle{\mbox{BreakEven Revenue}=\frac{FC}{CR}}[/latex]
Attribution
“Chapter 5 Summary” from Business Math: A StepbyStep Handbook (2021B) by J. Olivier and Lyryx Learning Inc. through a Creative Commons AttributionNonCommercialShareAlike 4.0 International License unless otherwise noted.