Managerial Accounting: CVP Analysis, Segment Reporting, Costing Methods, and Occupational Fraud

Vocabulary flashcards covering core concepts from Cost-Volume-Profit (CVP) analysis, operating leverage, tax adjustments, segment reporting, absorption versus variable costing, and occupational fraud patterns.

Cost-volume-profit (CVP) analysis

A planning model that connects sales volume, pricing, costs, and profit to evaluate whether a product, service, or event makes financial sense.

Variable costs

Costs that increase or decrease in direct proportion to unit sales volume, such as raw materials, hourly production labor, and sales commissions.

Fixed costs

Costs that remain constant in total regardless of sales volume within a normal relevant range, such as rent, insurance, salaried managers, and equipment depreciation.

Contribution income statement

An internal income statement format that groups costs by behavior by subtracting all variable costs first to arrive at contribution margin, and then subtracting fixed costs.

Contribution margin

The revenue remaining after deducting variable costs, which goes toward covering fixed costs before generating profit ($\text{Sales} - \text{Variable costs}$).

Unit contribution margin

The amount that each individual unit sale contributes toward covering fixed costs and generating profit, calculated as unit selling price minus variable cost per unit.

Contribution margin ratio

The proportion of each sales dollar remaining after covering variable costs, calculated as total contribution margin divided by total sales revenue.

Sensitivity analysis

The practice of evaluating how net profit responds to changes in underlying assumptions or variables such as sales volume, price, or costs.

Break-even point

The sales level where total revenue exactly equals total costs, resulting in zero profit.

Margin of safety

The cushion between expected or actual sales and the break-even sales volume, showing how far sales can drop before incurring a loss.

Cost-volume-profit graph

A visual representation plotting units on the horizontal axis and dollars on the vertical axis, showing total revenue, total variable costs, total costs, and the break-even point.

Profit-volume graph

A visual representation showing a single line for profit that starts below zero at a loss equal to fixed costs and crosses zero at the break-even point, with a slope equal to the contribution margin ratio.

Sales mix

The relative proportion or combination in which a company's different products or services are sold.

Operating leverage

A measure of how sensitive a company's operating profits are to a given percentage change in sales, dictated by its mix of fixed versus variable costs.

Operating leverage ratio

A measure calculated as $\text{Contribution margin} \div \text{Before-tax profit}$, which multiplied by the percentage change in sales equals the percentage change in before-tax profit.

Segment

Any component, division, product line, or geographic territory of an organization that management chooses to evaluate separately.

Direct costs (segment reporting)

Costs that are clearly traceable to and caused by a specific segment of a business.

Segment margin

A segment's revenue minus direct variable costs and direct fixed costs, which indicates the short-term impact on company profit if that segment were dropped.

Segment income

A segment's margin minus allocated common costs, which indicates the long-term impact on company profit if avoidable shared costs can be eliminated.

Unallocated common costs

Shared expenses that cannot be reasonably or fairly divided among individual segments (such as executive salaries) and are subtracted only at the overall entity level.

Absorption costing

An inventory costing method required under GAAP that treats all factory manufacturing costs, including fixed factory overhead, as product costs stored in inventory until sold.

Variable costing

An internal inventory costing method that treats only variable factory costs as product costs, expensing all fixed factory overhead in the period incurred.

Occupational fraud

Fraud committed by employees, managers, or executives against their employing organization by misusing organizational assets or funds for personal enrichment.

Asset misappropriation

The most common category of occupational fraud involving the theft or unauthorized misuse of company resources such as cash, inventory, or equipment.

Corruption

A fraud category involving schemes such as bribery, kickbacks, bid rigging, or undisclosed conflicts of interest.

Financial statement fraud

An occupational fraud category involving the deliberate misstatement or falsification of financial reports, representing the rarest yet costliest type of fraud.

Active fraud detection

Proactive detection techniques—such as surveillance, automated data monitoring, account reconciliation, and document review—that uncover fraud significantly faster and with smaller financial losses than passive detection.