Management Accounting
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13 Terms
Breakeven Analysis
Volume of sales at which the business makes neither profit nor loss
Margin of safety
How far the budget can fall before the breakeven point is reached
Profit volume analysis ratio
Helps see how a change in sales volume, and/or costs, affects profits
Scenario Analysis
The impact on profits of changing selling prices and/or variable costs and/or fixed costs
Breakeven - Calculation
Sales volume x contribution per unit = fixed costs
Margin of safety - Calculation by sales revenue
((budget sales - breakeven sales) / budget sales) x 100
Margin of safety - Calculation by number of units
((budget sales units - breakeven sales units) / budget sales units) x 100
Profit volume ratio - Calculation
(Total contribution / sales revenue x 100) or (Contribution per unit / selling price x 100)
Economic order quantity - Calculation
√(2CoD/Ch)
Inventory buffer - Calculation
reorder level - (average usage x average lead time)
Reorder level - Calculation
(average usage x average lead time) + inventory level
Maximum reorder quantity - Calculation
maximum inventory level - inventory buffer
(OAR) Overhead Absorption Rate - Calculation
Budgeted total overheads / Budgeted activity levels
