Management Accounting and Costing 241 Flashcards

Flashcards covering key vocabulary and formulas related to Cost-Volume-Profit (CVP) analysis, break-even points, margin of safety, and operating leverage.

CVP Analysis

A risk analysis tool used to analyze the impact on profit of volatility in costs, volumes, & prices, and any variable affecting profits and cash flows.

Break-even Point (Equation Method)

Sales – variable costs – fixed costs = 0

Break-even Point (CM Method)

BE units = FC/CM per unit; BE sales = FC/CM%

Target Profit (Equation Method)

Sales – variable costs – fixed costs = TP

Target Profit (CM Method)

TP units = (FC + TP)/CM per unit; TP sales = (FC + TP)/CM%

Margin of Safety

Sales – BE sales

Margin of Safety (Percentage)

MOS (in sales value)/Current Sales level or MOS (in units)/Current unit sales level

Degree of Operating Leverage (DOL)

CM/net operating profit

Break-even quantity

Total fixed cost / Marginal income per unit

Sales volume

(Fixed costs + Expected profit) / Contribution per unit

Sales value

(Fixed costs + Expected profit) / Contribution ratio

Break even volume

Total Fixed Costs / Contribution Margin per Unit

Break even selling price per unit

Break even cm/unit + VC/unit