ACYMANS: Cost Volume Profit Analysis

Contribution Margin (CM)

The difference between sales and variable cost. It is otherwise known as marginal income, profit contribution, contribution to fixed cost or incremental contribution.

Contribution Margin per Unit

Contribution Margin per Unit / Selling Price

Contribution Margin Ratio

Contribution Margin / Sales Revenue

Contribution Margin Ratio

Change in Contribution Margin / Change in Sales

Contribution Margin Ratio

1 - Variable Cost Ratio

Break-Even Point

A level of activity, in units, or in pesos, at which total revenues equal total costs. There is neither a profit nor a loss.

Break-even Point (Units)

Fixed Costs / Contribution Margin per Unit

Break-even Point (Php)

Fixed Costs / Contribution Margin Ratio

Break-even Point (Php)

BEP (Units) * Selling Price

Sales (Units) for a Target Profit

(Fixed Costs + Desired Profit) / Contribution Margin per Unit

Sales (Php) for a Target Profit

(Fixed Costs + Desired Profit) / Contribution Margin Ratio

Sales (Php) with Target Return on Sales (%)

Fixed Costs / Contribution Margin Ratio - Return on Sales

Indifference Point

The level of volume at which two alternatives being analyzed would yield equal amount of total costs or profits. It is at this point where the decision maker would be indifferent as to what alternative to take.

Indifference Point

(Unit CM x Q) - Fixed Costs = (Unit CM x Q) - Fixed Costs

Indifference Point

Fixed Costs + (Unit VC Q) = Fixed Costs + (Unit VC Q)

Sales Mix

The relative combination of quantities of sales or various products that make up the total sales of a company. It is also used to compute for the breakeven point in case there is more than one unit that the company is producing and subsequently selling.

Over-all Break-even Point (Units)

Fixed Cost / Weighted Average CM per Unit

Weighted Average CM Ratio

Total CM (All Products) / Total Revenue (All products)

Over-all BEP (Peso Sales)

Fixed Cost / Weighted Average CM Ratio

Sales Peso Mix

Sales Revenue of Each Product / Total Sales

Margin of Safety

It is the difference between actual or budgeted sales and break-even sales. It indicates the maximum amount by which sales could decline without incurring a loss.

Margin of Safety

Sales - Breakeven Sales

Margin Safety Ratio

Margin of Safety / Sales

Margin of Safety Ratio

Net Profit Ratio / Contribution Margin Ratio

Degree of Operating Leverage

Measures how a percentage change in sales will affect company profits. It indicates how sensitive the company is to sales volume increases and decreases. It is also known as the operating leverage factor

Degree of Operating Leverage

Contribution Margin / Profit before tax

Change in Operating Profit

DOL x Percentage Change in Sales

Volume below Indifference Point

The alternative with the lower fixed cost is more profitable.

Volume above the Indifference Point

the alternative with the higher fixed cost is more profitable.

Change in Operating Profit

Change in Peso Sales x Contribution Margin Ratio

Contribution Margin Ratio

Increase in Fixed Costs / Increase in Breakeven Sales Volume

Indifference Point

Change in Fixed Cost / Change in Variable Cost