ACC242 Chapter 7

operating leverage factor formula:

contribution margin / operating income IF volume increases by 1%.... operating income will ______.

formula for contribution margin ratio

contribution margin per unit / sales price per unit

All else being​ equal, a decrease in a​ company's fixed expenses​ will:

decrease the sales needed to break even.

if the sales price decreases... then unit contribution margin ____ and the units to produce needed _____

decreases increases

All else equal, company earns more operating income by selling ________.

high-contribution margin products

operating leverage factor

how responsive a company's operating income is to changes in volume

if the sales price increases... then unit contribution margin ____ and the units to produce needed _____

increases decreases

All else being​ equal, if a​ company's variable expenses​ increase,

its contribution margin ratio will decrease.

margin of safety in dollars

(expected or actual) sales in dollars - breakeven sales = margin of safety in dollars

margin of safety in units:

(expected or actual) sales in units - breakeven units = margin of safety in units

formula: breakeven point in units

(fixed expenses + operating income) / contribution margin per unit

formula: breakeven point in sales dollars

(fixed expenses + operating income) / contribution margin ratio

Indifference point:

Point at which a company is indifferent between two options because they result in the same total cost.

what is CPV

Powerful tool that helps managers make decisions Expresses relationship among costs, volume, and the company's profit Determine sales volume needed to break even or earn a target profit

operating leverage

Relative amount of fixed and variable costs that make up total costs

breakeven point

sales level in which operating income is 0

sales mix -

the combination of products that make up total sales

Weighted-average contribution margin:

weights each contribution margin by the relative number of units sold