Managerial Accounting

CVP

is a technique used to examine the relationships among the total volume of an independent variable, total costs, total revenues, and profits for a time period (typically a quarter or year).

Sales Mix

refers to the relative portion of unit or dollar sales derived from each product or service.

Direct Materials

refer to the cost of the primary raw materials converted into finished goods. Because the consumption of raw materials increases as the quantity of goods produced increases, | direct materials represents a variable cost.

Direct labor

refers to wages earned by production employees for the time they spend working on _ the conversion of raw materials into finished goods.

VMOH

includes all other variable costs associated with converting raw materials into finished goods.

Variable selling and administrative costs

include all variable costs other than those directly associated with converting raw materials into finished goods.

Fixed manufacturing overhead

includes all fixed costs associated with converting raw materials into finished goods.

Fixed selling and administrative costs

include all fixed costs other than those directly associated with converting raw materials into finished goods.

Profit formula

(Price × Units) − (Fixed costs + Variable cost per unit × Units)

Revenue formula

Unit selling price-unit sales

Total costs formula

fixed costs+variable costs (unite sales)

unit contribution margin

is the difference between the unit selling price and the unit variable costs.

sensitivity analysis

the study of the responsiveness of a model to changes in one or more of its independent variables

Contribution margin

the difference between total revenues and total variable costs

Contribution margin ratio

It is the portion of each dollar of sales revenue contributed toward covering fixed costs an earning a profit.

Degree of operating leverage

DOL X % change in sales= change in profit

Break-even sales

fixed costs/ weighted Cm

weighted contribution margin

(Sales Mix Percentage × Contribution Margin Ratio) + (Sales Mix Percentage × Contribution Margin Ratio

Target units

(Fixed costs + Desired profit) ÷ Unit contribution margin

Break-even sales dollars

Fixed costs ÷ Contribution margin ratio

Target sales dollars

(Fixed costs + Desired profit) ÷ Contribution margin ratio

Operating leverage ratio

Contribution margin ÷ Before-tax profit

Operating leverage ratio

Operating leverage ratio × % change in sales = % change in before-tax profit