Cost-Volume-Profit (CVP) Formulas and Concepts

A set of vocabulary flashcards defining key Cost-Volume-Profit (CVP) concepts, formulas, and relationships from the lecture material.

Unit CM

The unit contribution margin, calculated as $\text{Selling price} - \text{Variable cost/unit}$.

Total CM

The total contribution margin, calculated as $\text{Sales} - \text{Variable expenses}$.

CM Ratio

The contribution margin ratio, calculated as $\text{CM} \div \text{Sales}$.

Variable Expense Ratio

The variable expense ratio, calculated as $\text{Variable expenses} \div \text{Sales}$.

CM Ratio + Variable Expense Ratio

The sum of the contribution margin ratio and the variable expense ratio, which equals $100\%$.

Profit (Unit Formula)

Profit calculated using unit sales quantity, expressed as $\text{Unit CM} \times \text{Quantity} - \text{Fixed expenses}$.

Profit (Sales Dollar Formula)

Profit calculated using total sales dollars, expressed as $\text{CM ratio} \times \text{Sales} - \text{Fixed expenses}$.

Break-even Units

The unit sales required to break even, calculated as $\text{Fixed expenses} \div \text{Unit CM}$.

Break-even Sales ($)

The dollar sales required to break even, calculated as $\text{Fixed expenses} \div \text{CM ratio}$.

Target-profit Units

The unit sales required to attain a specific target profit, calculated as $(\text{Fixed expenses} + \text{Target profit}) \div \text{Unit CM}$.

Target-profit Sales ($)

The dollar sales required to attain a specific target profit, calculated as $(\text{Fixed expenses} + \text{Target profit}) \div \text{CM ratio}$.

Margin of Safety ($)

The excess of actual sales dollars over break-even sales dollars, calculated as $\text{Actual sales} - \text{Break-even sales}$.

Margin of Safety Units

The excess of actual unit sales over break-even unit sales, calculated as $\text{Actual units} - \text{Break-even units}$.

Degree of Operating Leverage (DOL)

A measure of operating leverage sensitivity, calculated as $\text{CM} \div \text{NOI}$.

% Change in NOI

The percentage change in net operating income, calculated as $\text{DOL} \times \text{\% change in sales}$.