Obviously, managers want a level of sales greater than break-even sales. To express how close they expect to be to the break-even level, managers may calculate the margin of safety, which is the difference between the expected level of sales and break-even sales. For example, AA Companys break-even level of sales is $300 000, If it expects to have sales of $420 000, the margin of safety is $120 000. 4. Contribution Margin The profit equation can be rewritten by combining terms with them Profit=(SP-VC)(x)-TFC The difference between the selling price and variable costs per unit is referred to as the contribution margin. Each unit sold contributes this amount to cover fixed costs and increase profits. Consider what happens when sales increase by one unit. The firm benefits from revenue equal to the selling price but they also are unaffected by changes in volume, they do not enter into the If we solve the profit equation for the sales quantity in units(x) the follow X=(Profit+TFC)/Contribution Margin This is a handy formula for calculating the break-even point and solving for the quantity needed to earn various profit levels AA Companys amount of fixed costs is $100 000 per month. With a selling price of $150 and variable costs Of$100, the contribution margin is 50. Using the formula implies that AA must sell 2 000 units to break each month 2000=(0+S100000/$50 Now AA Company's management wants to know how many units the company must sell to achieve a profit of $40 000 in a given month. Using the formula implies that Union Skate must sell 2 800 units te 2800=($40000+$100000/$50Obviously，managers want a level of sales greater than break-even sales．To express how close they expect to be to the break—even level，managers may calculate the margin of safety，which is the difference between the expected level of sales and break-even sales．For example，AA Company’s break-even level of sales is $300 000，If it expects to have sales of $ 420 000，the margin of safety is $120 000． 4. Contribution Margin The profit equation can be rewritten by combining terms with them． Profit=(SP-VC)(x)-TFC The difference between the selling price and variable costs per unit is referred to as the contribution margin． Each unit sold contributes this amount to cover fixed costs and increase profits．Consider what happens when sales increase by one unit. The firm benefits from revenue equal to the selling price， but they also are unaffected by changes in volume，they do not enter into the analysis． If we solve the profit equation for the sales quantity in units (x)，we get the following expression： X=(Profit +TFC)／Contribution Margin This is a handy formula for calculating the break-even point and solving for the quantity needed to earn various profit 1evels. AA Company’s amount of fixed costs is $100 000 per month．With a selling price of $150 and variable costs Of $100，the contribution margin is $ 50．Using the formula implies that AA must sell 2 000 units to break each month． 2 000= (0+$100 000)／$50 Now AA Company’s management wants to know how many units the company must sell to achieve a profit of $40 000 in a given month．Using the formula implies that Union Skate must sell 2 800 units to achieve a profit of $40 000． 2 800=($40 000+$100 000)／$50