Cost-Volume-Profit Analysis Lecture Notes

These flashcards cover key concepts related to relevant costs and Cost-Volume-Profit (CVP) analysis as discussed in the lecture.

Relevant Costs

Costs that are directly applicable to a decision at hand, including future costs and revenues.

Cost-Volume-Profit (CVP) Analysis

A method that examines the relationship between changes in costs and volume on a company's profits.

Break-Even Point

The level of sales at which total revenues equal total costs, resulting in no profit or loss.

Contribution Margin

The amount remaining from sales revenue after variable expenses have been deducted, used to cover fixed costs.

Fixed Costs

Costs that do not change with the level of activity or production, remaining constant within a given range.

Variable Costs

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

Margin of Safety

The difference between actual or budgeted sales and the break-even sales, indicating risk levels.

Opportunity Cost

The cost of forgoing the next best alternative when making a decision.

Sunk Costs

Costs that have already been incurred and cannot be recovered; they should not factor into future decisions.

Contribution Margin Ratio

A ratio that shows the contribution margin as a percentage of total sales revenue, calculated as Contribution Margin divided by Sales Revenue.

Sales Mix

The proportion of different products sold by a company, influencing the overall profitability.

Short-Term Decision Making

The process of making decisions based on current costs and revenues relevant to the immediate future.

High-Low Method

A technique used to estimate variable and fixed costs by analyzing the highest and lowest levels of activity.

Break-Even Analysis

A financial calculation to determine the sales volume required to cover costs.

Stepped Costs

Costs that remain fixed over a specific range of activity but jump to a different amount at certain activity levels.

Incremental Costs

Additional costs that will be incurred if a specific decision is made.

Net Profit

The actual profit after working expenses not included in the calculation of gross profit have been paid.