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20 Cards in this Set
- Front
- Back
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break-even point
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the level of sales at which profit is zero. can also be defined as the point where total sales equals total expenses or as the point where total contribution margin equals total fixed expenses.
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contribution margin method
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a method of computing the break-even point in which the fixed expenses are divided by the contribution margin per unit.
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contribution margin ratio (CM ratio)
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the contribution margin as a percentage of total sales.
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cost-volume-profit (CVP) graph
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the relationships between an organization's revenues, costs, and level of activity presented in graphic form
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degree of operating leverage
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a measure, at a given level of sales, of how a percentage change in sales volume will affect profits. it is computed by dividing contribution margin by net operating income.
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equation method
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a method of computing the break-even point that relies on the equation Sales = Variable expenses + Fixed expenses + Profits
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incremental analysis
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an analytical approach that focuses only on those items of revenue, cost, and volume that will change as a result of a decision.
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margin of safety
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the excess of budgeted (or actual) sales over the break-even volume of sales.
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operating leverage
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a measure of how sensitive net operating income is to a given percentage change in sales. it is computed by dividing the contribution marginby net operating income.
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sales mix
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the relative proportions in which a company's products are sold. sales mix is computed by expressing the sales of each product as a percentage of total sales.
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break even point (in terms of units) for CONTRIBUTION APPROACH
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(fixed expenses + profits) / unit contribution margin
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break even point (in terms of dollars) for CONTRIBUTION APPROACH
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(fixed expenses + profits) / contribution margin ratio
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unit sales to attain target profits equation
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(fixed expenses + target profits) / unit contribution margin
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margin of safety in dollars equation
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total sales - break even sales
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margin of safety in percentage equation
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margin of safety in dollars / total sales
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degree of operating leverage equation
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contribution margin / net operating income
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overall CM ratio equation
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total contribution margin / total sales
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break even sales using overall CM ratio
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fixed expenses / overall CM ratio
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sales to achieve target profits using overall CM ratio
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(fixed expenses + target profits) / overall CM ratio
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break even point (in terms of unit) for EQUATION APPROACH
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total revenues = TVC + TFC
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