ACCT 202: Ch. 3

break-even point

The ~ is where the total revenue and total expenses lines intersect on a CVP graph.

CVP analysis

This helps managers understand the interrelationships among cost, volume, and profit

(target profit + fixed expenses) / (unit CM)

Unit Sales to attain target profit =

variable

When you're filling a special order, all you have to do is cover your ___ expenses.

50

With an operating leverage of 5, if sales increase by 10%, NOI would increase by ___%.

break-even point

The point at which the costs of producing a product equal the revenue made from selling the product

contribution margin (CM)

the amount remaining from sales revenue after variable expenses have been deducted

contribution margin (CM)

this is used first to cover fixed expenses; any remaining contributes to net operating income.

CM/NOI

Degree of operating leverage =

40

A contribution margin of ___% tells us that for each dollar increase in sales, the company will produce $0.40 in contribution margin.

total CM / total sales (OR unit CM / unit sales price)

CM RATIO FORMULA =

profit = (sales-variable expenses) - fixed expenses

CVP Relationships in Equation form; what is the equation for profit

CM

Commissions based on (sales dollars/CM) can lead to higher profits.

sales dollars

Commissions based on (sales dollars/CM) can lead to lower profits.

lower

Commissions based on sales dollars can lead to (higher/lower) profits.

Net Operating Income (NOI)

Contribution margin is first used to cover fixed expenses; any remaining contributes to ~.

Y

In a CVP graph, dollars is represented on the __ axis.

X

In a CVP graph, unit volume is represented on the _ axis.

margin of safety in $ / total sales

Margin of safety % =

total sales - break even sales

Margin of safety in dollars =

margin of safety in $ / unit price

Margin of safety in units =

break-even point

On a CVP graph, the point where total expenses intersects with Sales is what?

(target profit + fixed expenses) / (CM Ratio)

Sales $ to attain target profit =

T

T/F: The contribution income statement is helpful to managers in judging the impact on profits of changes in selling price, cost, or volume; The emphasis is on cost behavior