Cost Volume Profit Analysis Overview

Flashcards covering key concepts of Cost Volume Profit Analysis.

Cost Volume Profit Analysis

A managerial accounting method used to understand the relationship between cost, sales volume, and profit.

Contribution Margin

The difference between sales revenue and variable costs, indicating how much revenue is available to cover fixed costs and generate profits.

Fixed Costs

Costs that do not change with the level of production or sales volume.

Variable Costs

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

Breakeven Point

The level of sales at which total revenues equal total costs, resulting in zero profit.

Saturation Point

The maximum level of sales or production that a market can sustain.

Inventory Holding Costs

The expenses associated with storing unsold goods.

Algebraic Equation for CVP

Income = (Price * Quantity) - (Variable Cost * Quantity) - Fixed Costs.

Managerial Decisions based on CVP

Strategies devised by managers to maximize profitability based on cost volume profit analytics.

Contribution Margin Ratio

A measure that indicates the percentage of each sales dollar that is available to cover fixed costs.