Cost-Volume-Profit Analysis Flashcards

Flashcards for BA 202 - Chapter 7: Cost-Volume-Profit Analysis

What is Cost-Volume-Profit analysis (break-even analysis)?

A method to determine the relationship between costs, volume, and profit.

What is the formula for Contribution Margin?

Sales Revenue - Variable Costs

What is the formula for Contribution Margin Ratio (CMR)?

Contribution Margin / Sales Price (CM/SP)

What is the formula to calculate Break-Even Point in Units (BEPU)?

Fixed Costs / Contribution Margin (FC/CM)

What is the formula to calculate Break-Even Point in Dollars (BEPD)?

Fixed Costs / Contribution Margin Ratio (FC/CMR)

What is the formula to calculate Target Profit in Units (TPU)?

(Fixed Costs + Target Profit) / Contribution Margin

What is the formula to calculate Target Profit in Dollars (TPD)?

(Fixed Costs + Target Profit) / Contribution Margin Ratio

How do you calculate break-even point in units for a sales mix?

(Fixed Costs + Target Profit) / Weighted-Average Contribution Margin

What is the formula for Margin of Safety in Units (MSU)?

Sales in Units - Break-Even Point in Units

What is the formula for Margin of Safety in Dollars (MSD)?

Sales in Dollars - Break-Even Point in Dollars

What does Margin of Safety indicate?

How much sales can decline before incurring a loss.

What is the formula for Operating Leverage (OL)?

Contribution Margin / Operating Income

What is the significance of Operating Leverage?

The degree to which a company uses fixed costs in its operations. It measures how much operating income will increase from an increase in revenue.