Sales price per unit - Variable cost per unit
#NAME?
(Contribution margin per unit / Sales price per unit) x 100 =
Contribution margin ratio (as a %)
__________ margin tells managers how much revenue is left - after paying variable expenses - for contributing towards covering fixed costs and then generating profit.
Contribution.
Managers use the firm's ________ ________ factor to determine how vulnerable their operating income is to changes in sales volume.
operating leverage
The operating leverage factor, at a given level of sales, indicates the percentage change in ______ _________
operating income that will occur from a 1% change in volume.
The _______ the operating leverage factor,
#NAME?
is a method of analysis that looks at the relationship between cost, volume of activity, and profits.
Cost-volume-profit (CVP)
Change in direct proportion to changes in volume of activity.
Total Variable Expenses
Expenses that do not change over wide ranges of activity.
Total Fixed Expenses
Variable Expense Rate
0
Sales x Variable expense rate =
Variable Expenses
Breakeven point is the sales level at which the operating income is ___?
Zero.
____-______-_______ involves analyzing what a business must sell in order to break even.
cost-volume-profit (CVP)
Sales price per unit - Variable cost per unit =
Contribution margin per unit
Breakeven sales in units =
Fixed Expenses + Operating Income (0) / Contribution Margin per Unit
Breakeven sales in dollars =
Fixed Expenses + Operating Income (0) / Contribution Margin Ratio
Contribution Margin Ratio @ Any volume of sales =
Contribution Margin / Sales Revenue
Contribution Margin Ratio @ at the unit level =
Unit Contribution Margin / Sales price per unit
The excess of the unit sales price over the variable cost per unit.
Contribution Margin Per Unit
An income statement that groups costs by behavior rather than function; can be used only by internal management.
Contribution Margin Income Statement
Ratio of contribution margin to sales revenue.
Contribution Margin Ratio
Sales in units =
Fixed expenses + operating income / contribution margin per unit
Operating Leverage
The relative amount of fixed and variable costs that make up a firm's total costs.
At a given level os sales, the contribution margin divided by operating income. The operating leverage factor indicates the percentage change in operating income that will occur from a 1% change in sales volume.
Operating Leverage Factor
Total fixed costs / Contribution margin per unit
#NAME?
(Fixed expenses + Operating income) / Contribution margin per unit
Sales in units (shortcut approach)
"Compute the required quantity of tickets...
Is the excess of expected sales over breakeven sales. This is the "cushion" or drop is sales the company can absorb without incurring a loss.
Margin of Safety
Expected units - Breakeven units
#NAME?
_______ ________ factor tells us how responsive a company's operating income is to changes in volume. The greater the operating leverage factor, the greater the impact a change in sales volume has on operating income.
Operating Leverage
Expected unit sales x Contribution margin per unit =
Total Contribution Margin
Contribution Margin per Unit x Units Sold =
Contribution Margin
Total Fixed Costs =
# of units * fixed cost per unit @ given level
remains constant
Fixed Cost per Unit =
Total Fixed Costs
________________
Quantity
# of units * variable cost per unit =
Total Variable Costs
Total Variable Cost
------------------------ =
Quantity
(remains constant)
Variable cost per unit
Fixed Cost + (Quantity * Variable Cost) =
Total Mixed Cost
Total Variable Cost
-----------------------
Quantity * Variable Cost
#NAME?
Sales Price Per Unit * Units Sold
#NAME?
Fixed Expense + (Variable Expense per unit * Units Sold)
#NAME?
Sales Revenue - Variable Expense - Fixed Expense
#NAME?
Variable cost per unit * units sold
#NAME?
Fixed + Operating
---------------------
Contribution Margin Ratio
0
Fixed + Operating
----------------------
Sales - Variable
#NAME?
CVP assumes that: 1.
1. change in volume is only factor that affects costs.
CVP assumes that: 2.
2. managers can classify each cost as either variable or fixed. These costs are linear throughout relevant range.
CVP assumes that: 3.
3. revenues are linear throughout relevant range.
CVP assumes that: 4.
4. inventory levels will not change.
CVP assumes that: 5.
5. the sales mix of products will not change.
Contribution Margin Ration is 60% of sales
Variable costs are 40% of sales
What Does Contribution Margin Mean?
A cost accounting concept that allows a company to determine the profitability of individual products.
The sales level at which operating income is zero: Total revenues = total expenses.
Breakeven Point
Expresses the relationship among costs, volume, and profit or loss.
Cost-Volume-Profit Analysis
Margin of Safety
Is the excess of expected sales over breakeven sales.
Margin of Safety in units equation =
(Breakeven sales in units) - (Expected sales in units)
Margin of Safety in dollars equation =
(Margin of safety in units) x (units by the sales price per unit)
A company's operating leverage refers to the relative amount of fixed and variable costs that make up its total costs.
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