Cost Accounting - Chapter 3: Cost-Volume-Profit Analysis

These flashcards cover key concepts related to Cost-Volume-Profit analysis, including definitions, formulas, and key terms relevant for the exam.

Cost-Volume-Profit (CVP) Analysis

A method studying the relationships between total revenues, total costs, and operating income as sales volume changes.

Contribution Margin

The difference between total revenues and total variable costs, which goes toward covering fixed costs and profit.

Break-even Point (BEP)

The quantity of output sold at which total revenues equals total costs.

Operating Income

The difference between total revenues and total costs after accounting for both fixed and variable costs.

Contribution Margin Ratio

The contribution margin per dollar of revenue, indicating the percentage of revenue that covers fixed costs and profit.

Sensitivity Analysis

A technique to examine how an outcome will change if the original predicted data or underlying assumptions change.

Margin of Safety (MOS)

The distance between budgeted sales and breakeven sales, indicating how much sales can fall before the business incurs a loss.

Degree of Operating Leverage (DOL)

A measure that indicates how a change in sales volume will affect operating income.

Fixed Costs

Costs that do not change with the level of sales or production, such as rent and salaries.

Variable Costs

Costs that vary directly with the level of production or sales volume.

Gross Margin

The amount remaining after subtracting the cost of goods sold from revenue.

CVP Equation

The formula relating revenues, costs, contribution margin, and operating income to analyze profitability.