Chapter 21- Cost- Volume- Profit (Cvp) Analysis

Front 1

Cost- Volume- Profit (CVP) Analysis

Back 1

Helps predict how changes in costs and sales levels affect income, involves computing the sales level at which a company neither earns an income nor incurs a loss. A.K.A. break even point

Front 2

FIxed Costs

Back 2

Remains unchanged in amount when the volume of activity varies from period to period within a relevant range.

Front 3

Variable Costs

Back 3

Changes at a constant rate, linearly, in proportion to changes in volume of activity.

Front 4

Mixed- Costs

Back 4

Both Fixed and variable cost components

Front 5

Step-Wise Costs

Back 5

A pattern in Costs where they jump in lump-sums. Where costs are fixed within a relevant range of current production, but can change when production exits this range.

Front 6

Curvilinear Costs

Back 6

Nonlinear cost, increases at a non-constant rate as volume increases

Front 7

Scatter diagrams

Back 7

Displays of past cost and unit data in graphical form. Units are plotted on horizontal axis and cost on the vertical axis.

Front 8

High-low method

Back 8

Estimation of costs by graphically connecting the two cost amounts at the highest and lowest unit volumes

Front 9

How do you estimate fixed cost with high-low method?

Back 9

Total cost equals fixed cost plus variable cost per unit times the number of units.
Total cost= Fixed Cost + (Variable Cost x Units)
Chose either the high or low point to determine fixed cost

Front 10

Contribution margin per unit

Back 10

The amount in which a products unit selling price exceeds its total variable cost per unit.

=sales price per unit - total variable cost per unit

Front 11

Contribution Margin ratio

Back 11

Percent of unit's selling price hat exceeds total unit variable cost

=(contribution margin per unit)/(sales price per unit)

Front 12

Computing break-even point

Back 12

Sales level at which a company neither earns a profit nor incurs loss.

in units= (fixed costs)/(contribution margin per unit)

in dollars= (fixed costs)/ (contribution margin ratio)

Front 13

Margin of safety

Back 13

Excess of expected sales over the break-even sales level

in percent= ((expected sales)- (break even sales))/(expected sales)

Front 14

Cost-Volume-Profit Chart

Back 14

Graphical depiction of analysis where number of units produced and sold is on the horizontal axis and the vertical axis is dollars of sales and costs

Front 15

Relevant range of operations

Back 15

The normal operating range for a business. CVP typically operates within said range.

Front 16

Sales at target after-tax income

Back 16

dollar sales= ((fixed costs)+(target pretax income))/ (Contribution margin ratio)

Unit sales= ((fixed costs)+(target pretax income))/ (contribution margin per unit

Front 17

Sales mix

Back 17

The ratio, proportion, of the sales volumes for various products.

Front 18

Composite unit

Back 18

Consists of a specific number of units of each product in proportion to their expected sales mix