acc Flashcards
break even point
the level of sales at which profit is 0
contribution margin ratio
a ratio computed by dividing contribution margin by sales
degree of operating leverage
a measure, at a given level of sales, of how a percentage change in sales will affect profits. the degree of operating leverage is computed by dividing contribution margin by net operating income
incremental analysis
an analytical approach that focuses only on those costs and revenues that change as a result of a decision
margin of safety
the excess of budgeted or actual dollar sales over the break even dollar sales
operating leverage
a measure of how sensitive net operating income is to a given percentages change in dollar sales
target profit analysis
estimating what sales volume is needed to achieve a specific target profit
variable expense ratio
a ratio computed by dividing variable expenses by sales
contribution margin formula
sales- variable expenses
contribution margin ratio formula
contribution margin/ sales
CVP relationships in equation form
profit= (sales - variable expenses) - fixed expenses
variable expenses ratio
variable expenses/ sales
margin of safety
margin of safety in dollars = total budgeted (or actual) sales - break-even sales
degree of operating leverage
degree of operating leverage= contribution margin / net operating income
