CH 15: Cost-Volume-Profit Analysis

These flashcards cover key concepts related to Cost-Volume-Profit analysis and income statement formats, aiding in understanding and memorizing definitions and formulas important for the exam.

Contribution Income Statement

An income statement that classifies costs according to behavior (variable and fixed) and calculates contribution margin.

Functional (GAAP) Income Statement

An income statement that classifies costs according to function (manufacturing, selling, and administrative) and calculates gross margin.

Contribution Margin

Total revenues minus total variable costs; represents the amount contributing to fixed costs and profit.

Break Even Point

The sales volume at which total revenues equal total costs.

Operating Leverage

A measure of how fixed costs affect profits; higher leverage indicates higher risk and potential for profit.

Margin of Safety

The amount by which actual or planned sales exceed the break-even sales volume.

CVP Analysis

Cost-Volume-Profit analysis examines the relationships among total volume, total costs, total revenues, and profits.

Variable Costs

Costs that vary directly with the level of production.

Fixed Costs

Costs that do not vary with production levels.

Contribution Margin Ratio

The contribution margin expressed as a percentage of total sales.

Sales Mix

The relative portion of unit or dollar sales derived from each product.

Target Profit Analysis

Calculating the number of units to be sold to achieve a desired profit level.