Managerial acct. ch.5
With regards to interpretation, what are the important areas that appear on a CVP graph?
Break-even point, loss area, and profit area
Operating Leverage Formula
Contribution Margin / Operating Income
The profit graph is based on the following linear equation:
Profit = Unit CM × Q - Fixed Expenses.
Margin of Safety in Dollars
Total Sales - Break Even Sales
Margin of safety in units
margin of safety in dollars / selling price per unit
Margin of Safety Percentage
margin of safety in dollars / total sales
Break-even point is the level of sales at which ______.
total revenue equals total costs
Once the break-even point has been reached, net operating income will increase by the amount of the _____ for each additional unit sold.
unit contribution margin
unit sales to attain target profit
(Target Profit + Fixed Expenses) / Unit CM
dollar sales to attain target profit
(target profit + fixed expenses) / CM ratio
What is usually plotted as a horizontal line on the CVP graph?
Fixed expenses
What is represented on the X axis of a cost-volume-profit (CVP) graph?
Unit volume
breakeven formula in units
fixed costs / CM per unit
breakeven formula in dollars
fixed costs/ CM ratio
The measure of how sensitive net operating income is to a given percentage change in volume sales is called _______.
operating leverage
Contribution margin equals ________.
sales minus variable cost