Accting exam 2

CVP analysis allows companies to easily identify change in profit due to

volume, product mix and selling price

what are assumptions of CVP analysis

in multiproduct companies the sales mix is constant, and costs are linear and can be didved into variable and fixed elements

the equation that should be used in setting a target price for a special order bulk sale is

selling price per unit= variable cost per unit + desired profit per unit

to simplify CVP calculations, it is assumed that ______ will remain constant

selling price

degree of operating leverage equation

operating leverage = CM / net operating income

What is the formula for the CM ratio

CM ratio = CM / sales or CM ratio = 1 - VER

break even point for unit sales

BEP = fixed expenses / unit CM

break even point for dollar sales

BEP= fixed expenses / CM ratio

margin of safety percentage

MoS = MoS in dollars / total sales in dollars

margin of safety

MoS = total sales - BEP

a shift from high margin items to low margin items

causes profits to decrease

incremental analysis

focuses only on the costs and revenues that will change as a result to a decision

differential costs and benefits that should be considered in a decision

may be qualitative or quantitative

activities ranging from development to production to after sale service are called

value chain

the first step in decision making is to

define the alternatives