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11 Cards in this Set
- Front
- Back
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Operating Income Formula |
Sales – VC – FC = Operating Income (OI) or (SP-VC)Q-FC |
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Variable Costs |
VC per unit x Quantity sold |
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Breakeven Point in Units Formula |
FC/(SP-VC) or FC/CMu |
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Target Profit Formula |
(FC+OI)/(SP-VC/SP) OR (FC+OI)/CMRation |
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Break Even Revenue |
FC/CMR |
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Operating Leverage Formula |
CM/EBT (EBT=Income Before Taxes) |
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Margin of Safety, units and sales dollars MOS Ratio |
Units=Sales Units-BE Units Sales Dollars=Budgeted Sales-BE Dollars MOS/Budgeted Sales |
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CVP Assumptions |
-changes in production/sales volume are the sole cause for cost and revenue changes -Total costs consist of FC and VC -Rev and Costs behave like and can be graphed as a linear function -Selling price, variable costs per unit, and FC are all known and constant -In many cases only a single product will be analyzed. If multipleproducts are studied, their relative sales proportions are known andconstant -The time value of money (interest) is ignored. |
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After-tax Profit Formula |
OI x (1-Tax Rate)=Net Income or NI/(1-Tax Rate) =Operating Income |
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What-if questions for CVP |
What happens to profit if: Selling price changes? Volume changes? Cost structure changes: VC per unit changes? FC change? |
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Why do we do Cost -Volume-Profit Analysis? |
Planning: -How many units must be sold to breakeven? Examples? -How many units must be sold to make a certain amount of profit? Examples? Decision Making – controllable -What is the effect of increasing or decreasing advertising? -What is the effect of increasing or decreasing selling price? -What is the effect of selling a special edition of a product? Sensitivity Analysis – uncontrollable -What is the effect of a 1%/unit change in sales on breakeven and target profit? -What is the effect of a 1% /unit change in variable costs on breakeven and target profit? -What is the effect of a 1%/unit change in fixed costs on breakeven and target profit? -What is the effect of changing the product sales mix on breakeven and target profit? |
