Cost-Volume-Profit (CVP) Analysis

These flashcards cover key terms and concepts related to Cost-Volume-Profit (CVP) Analysis, used in managerial accounting to aid in decision-making.

Cost-Volume-Profit (CVP) Analysis

A managerial accounting tool that examines relationships among selling prices, sales volume, variable costs, fixed costs, and profit.

Contribution Margin

The amount remaining after variable costs are deducted from sales; key driver of profitability in CVP.

Breakeven Point

The sales level at which operating income is zero; total revenues equal total expenses.

Unit Contribution Margin

The excess of selling price per unit over variable cost per unit, indicating contribution towards fixed costs and profit.

Contribution Margin Ratio

The percentage of each sales dollar that contributes to covering fixed costs and generating profit.

Sensitivity Analysis

A what-if analysis technique that explores how changes in key business variables affect profitability.

Margin of Safety

The excess of actual (or expected) sales over breakeven sales, measuring how much sales can drop before incurring a loss.

Operating Leverage

The relative mix of fixed and variable costs in a company’s cost structure, indicating sensitivity of operating income to changes in sales volume.

Scenario Analysis

An evaluation technique that assesses multiple changes simultaneously across different possible outcomes.

Weighted-Average Contribution Margin

A single average contribution margin that reflects sales mix when analyzing multiple products.

Target Profit

The specific operating income that a company aims to earn, extending the breakeven concept.

Mixed Costs

Costs that contain both variable and fixed components, not accounted for in CVP analysis.

Fixed Costs

Costs that do not change with the level of output or sales, impacting breakeven and target profit calculations.

Variable Costs

Costs that vary directly with the level of output or sales, influencing contribution margin and profitability.

CM per unit

selling price - Variable cost per unit

CM ratio

CM per / selling price per unit

Breakeven (units)

Fixed costs / CM per unit

Breakeven (dollars)

Fixed costs / CM ratio

Target profit (units)

(fixed costs + Target profit) / CM per unit

Target profit (dollars)

(fixed costs + Target profit) / CM ratio

Wtd-Avg CM/unit (basket)

Total CM in basket / total units in basket

Wtd-Avg CM/unit (%)

(CM_A * %A) + (CM_B * %B)

Wtd-Avg CM/ratio (basket)

Total Cm in basket / total revenue in basket

Wtd-Avg CM/ratio (%)

Wtd-Avg CM/unit / Wtd-Avg selling price

Margin of safety

Actual sales - Breakeven sales

MOS percentage

MOS / actual sales

Operating leverage factor

Contribution margin / Operating income

% change in OI

% change in volume * Operating leverage factor