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