Chapter 16 Cost Acct

CVP analysis emphasizes…

nterrelationships of costs, quantity sold, and price

CVP analysis brings together

all of the financial information of the firm

Break-even point

Point of zero profit

What are the approaches to finding break-even point

• Operating income approach
• Contribution margin approach

operating income = 

income before taxes 

net income formula

operating income - taxes

variable product cost per unit

DM + DL + Variable OH

variable cost per unit 

DM + DL + Variable OH + Variable Selling EXP 

Contribution margin per unit

price - variable cost per unit

Equation for a target profit put in terms of units (units for a target profit) 

Total fixed cost + Target income 

———————————————-

Price - Variable cost per unit

Equation at Break-even, i.e., when target income is zero

Total fixed costs

---

Price - Variable cost per unit

contribution margin

Sales revenue - total variable costs

# of units forumla 

fixed costs 

---

unit contribution margin 

Before tax income 

After-tax income / (1- tax rate)

BE sales dollars

FC / CM ratio

BE sales units

FC / CM per unit

Operating income

(Price × Units) − (Unit variable cost × Units) − Fixed Costs

margin of safety

actual revenue - BE revenue

degree of operating leverage formula

TCM / profit