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20 Cards in this Set

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break-even point
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.
contribution margin method
a method of computing the break-even point in which the fixed expenses are divided by the contribution margin per unit.
contribution margin ratio (CM ratio)
the contribution margin as a percentage of total sales.
cost-volume-profit (CVP) graph
the relationships between an organization's revenues, costs, and level of activity presented in graphic form
degree of operating leverage
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.
equation method
a method of computing the break-even point that relies on the equation Sales = Variable expenses + Fixed expenses + Profits
incremental analysis
an analytical approach that focuses only on those items of revenue, cost, and volume that will change as a result of a decision.
margin of safety
the excess of budgeted (or actual) sales over the break-even volume of sales.
operating leverage
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.
sales mix
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.
break even point (in terms of units) for CONTRIBUTION APPROACH
(fixed expenses + profits) / unit contribution margin
break even point (in terms of dollars) for CONTRIBUTION APPROACH
(fixed expenses + profits) / contribution margin ratio
unit sales to attain target profits equation
(fixed expenses + target profits) / unit contribution margin
margin of safety in dollars equation
total sales - break even sales
margin of safety in percentage equation
margin of safety in dollars / total sales
degree of operating leverage equation
contribution margin / net operating income
overall CM ratio equation
total contribution margin / total sales
break even sales using overall CM ratio
fixed expenses / overall CM ratio
sales to achieve target profits using overall CM ratio
(fixed expenses + target profits) / overall CM ratio
break even point (in terms of unit) for EQUATION APPROACH
total revenues = TVC + TFC