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9 Cards in this Set
- Front
- Back
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Profit before tax = |
[(price - UVC) x # units sold] - FC |
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CVP analysis uses cost to determine |
how revenues, expenses, and profits will react to changes in volume (number of units sold) |
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Uses of CVP relation |
Plan profit Make executive decisions - change short-term prices - change mix of FC and VC - change product mix |
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Methods to evaluate operating risk |
1. Margin of Safety 2. Operating leverage |
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Margin of Safety |
(Current sales - breakeven sales)/current sales |
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What does a high percentage mean? |
Higher the percent, the lower the risk |
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Operating Leverage = |
FC/(VC + FC)
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Breakeven volume calculation
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Profit = (UCM x breakeven volume) - FC |
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Profit before taxes calculation |
PBT = (CM ratio x revenue) - FC |
