ACC 307 Chapter 3 Cost-Volume-Profit Analysis

Contribution margin percentage

= contribution margin / quantity of units sold // revenues/ quantity of units sold = contribution margin per unit / selling price = contribution margin / Revenues

Contribution Margin Method

(Selling price - Variable cost per unit) X (Quantity of units sold) - fixed costs = Operating Income (Contribution margin per unit X Quantity of units sold) - Fixed costs = Operating income

# of bundles required to be sold to break even

= breakeven revenues / revenue per bundle

Contribution margin % for the bundle

= contribution margin of the bundle / revenue of the bundle

Change in contribution margin

= contribution margin percentage X change in revenues

Revenues needed to earn target operating income

= fixed costs + target operating income / contribution margin %

Target operating income for breakeven

= fixed costs + target operating income / contribution margin per unit

breakeven revenues

= fixed costs / contribution margin % for the bundle

Breakeven point in bundles

= fixed costs / contribution margin per bundle

Operating leverage

describes the effects that fixed costs have on changes in operating income as changes occur in units sold and contribution margin.

Contribution income statement

groups costs into variable costs and fixed costs to highlight contribution margin

Three related methods about CVP relationships

1. the equation method 2. the contribution margin method 3. the graph method

Breakeven revenues

= Breakeven number of units X Selling price

Degree of operating leverage

= Contribution margin / Operating income

Contribution margin percentage ?

= Contribution margin / revenues

Quantity of units required to be sold

= Fixed costs + target operating income / contribution margin per unit

Breakeven number of units

= Fixed costs / Contribution margin per unit

Breakeven revenues ?

= Fixed costs / contribution margin %

Gross Margin

= Revenues - Cost of goods sold

Contribution margin

= Revenues - all variable costs

Equation method

Operating income = Revenues - variable costs - fixed costs Revenues = Selling price (SP) X Quantity of units sold (Q) Variable costs = Variable cost per unit (VCU) X Quantity of units sold (Q) so , (Selling Price) X (Quantity of units Sold) - (Variable cost per unit) X (Quantity of units sold) - Fixed costs = Operating income

Contribution Margin

The difference between total revenues and total variable costs is called contribution margin Contribution Margin = Total Revenues - Total Variable Costs

Margin of safety

another aspect of sensitivity analysis margin of safety = budgeted (or actual) revenues - Breakeven revenues margin of safety (in units) = budgeted (or actual) sales quantity - breakeven quantity

Operating income (derived)

contribution margin percentage X revenues - Fixed costs

Contribution Margin formula (derived)

contribution margin percentage X revenues(in dollars)

Contribution margin percentage or contribution margin ratio

instead of expressing contribution margin in dollars per unit, these companies express it as a percentage called contribution margin percentage or contribution margin ratio CMP or CMR = contribution margin / revenues

Sensitivity analysis

is a "what-if" technique managers use to examine how an outcome will change if the original predicted data are not achieved or if an underlying assumption changes.

Contribution margin per unit

is a useful tool for calculating contribution margin and operating income. contribution margin per unit = selling price - variable cost per unit

Revenue Driver

is a variable, such as volume, that causally affects revenues.

Net income

is operating income plus non-operating revenues (such as interest revenue) minus non operating costs (such as interest cost) minus income taxes Net income = Operating income - Income taxes

Breakeven point (BEP)

is that quantity of output sold at which total revenues equal total costs - that is, the quantity of output sold that results in $0 of operating income.

Gross margin %

is the gross margin divided by revenues

Uncertainty

is the possibility that an actual amount will deviate from an expected amount

Sales mix

is the quantities (or proportion) of various products (or services) that constitute a company's total unit sales.

Operating income

operating income = contribution margin - fixed costs

PV graph

shows how changes in the quantity of units sold affect operating income

Cost-Volume-Profit (CVP) analysis

to study the behavior of and relationship among these elements as changes occur in the number of units sold, the selling price, the variable cost per unit, or the fixed costs of a product.