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.
