Accounting 200 – Cost-Volume-Profit Relationships

This set of flashcards covers key vocabulary terms and concepts related to Cost-Volume-Profit (CVP) analysis, essential for understanding how various factors impact a company's profitability.

Cost-Volume-Profit Analysis (CVP)

A financial analysis method that examines how changes in cost and volume affect a company's operating income and net profit.

Contribution Margin (CM)

The difference between sales revenue and variable expenses; indicates how much revenue is available to cover fixed costs.

Break-even Point

The sales level at which total revenues equal total costs, resulting in zero profit.

Variable Expense Ratio

The ratio of variable expenses to sales dollar revenue, indicating what portion of sales is consumed by variable costs.

Contribution Margin Ratio (CM Ratio)

The ratio of contribution margin to sales revenue, indicating the percentage of each sales dollar that contributes to fixed costs and profits.

Net Operating Income (NOI)

Income that remains after covering all variable and fixed expenses except for income taxes.

Margin of Safety

The difference between actual or budgeted sales and the break-even sales level; indicates how much sales can drop before a loss occurs.

Degree of Operating Leverage

A measure of how sensitive net operating income is to a percentage change in sales; acts as a multiplier for changes in sales.

Mixed Cost

A cost that has both fixed and variable components, changing with activity level but remaining partially constant over certain levels.

High-Low Method

A method used to estimate variable and fixed components of mixed costs by using the highest and lowest activity levels.