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9 Cards in this Set
- Front
- Back
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CVP analysis
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Cost, Volume, Profit analysis helps managers understand the relationships between cost, volume, and profit.
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Break-even point
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The level of sales at which profit is zero. Point where total sales = total expenses or point where total contribution margin = total fixed expenses.
BEP=FC/CMu Sales=Variable expenses+Fixed expenses+Profits |
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Contribution Margin Ratio
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A ratio computed by dividing contribution margin by dollar sales.
CM ratio = Contribution Margin / Sales |
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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 will affect profits. Computed by dividing contribution margin by net operating income.
Deg of Op Leverage = CM/NOI The result is a factor of change on the NOI. |
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Incremental analysis
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An analytical approach that focuses only on those costs and revenues that change as a result of a decision.
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Margin of safety
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The exess of budgeted (or actual) dollar sales over the break-even dollar sales.
Margin of safety = Total budgeted (or actual) sales - Break-even sales |
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Margin of Safety percentage
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Margin of safety expressed as a percentage by dividing the margin of safety in dollars by total dollar sales.
Margin of safety % = Margin of safety in $ / Total budgeted (or actual) sales in dollars |
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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 dollar sales.
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Variable Expense Ratio
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A ratio computed by dividing variable expenses by dollar sales.
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