C. Section Flashcards
Contribution Margin formula
= sales per unit/variable cost per unit
What is marginal cost
Is the cost of the next unit produced. It is calculated by taking the change in costs between two levels of output ( volume)
Variable expenses formula
= (1-cm) ( sales amount)
Variable cost per unit formula
= DM/unit + DL /unit + VO/unit + variable selling costs/ unit
How does total cost remain for fixed cost
The total cost for fixed costs remain constant within the relevant range of activity while the unit costs increases or decreases within change in activity.
Breakeven analysis
- Linearity - the cost and revenue functions are linear over the relevant range.
- Certainty - the parameters, prices, unit variable costs and fixed costs are presumed to be constants over the relevant range.
- A single product or defined product mix
- Production = sales
What is weighted average contribution margin
Is the sum of ( unit contribution margin * relative weight) for each product.
CVP analysis
- raising or lowering existing prices
- introducing a new product or services
- setting prices for new products and sevies
- expanding product and service markets
- deciding whether to replace an existing piece of equipment
- deciding whether to make or buy product or services
What is minimum accepted price=
Variable cost +. Opportunity costs
What is perfectly inelastic demand mean?
- demand will not change due to change in price
- necessary items such as insulin have perfectly inelastic demand
What is relatively elastic
People buy less at higher pries but the percent change in quantity demanded is greater than the percent change in price.
- when the change in the amount people buy is greater than the change in price, either higher or lower; a price change will cause an even larger change in quantity demanded.
What is perfectly elasticity
That a small decrease in price will result in a substantially increased demand or a small increase in price will result in demand falling to zero.
What is Quantity function deployment (QFD)
Is a structured method in which customer requirements for a product or service are transferred into appropriate technical requirements at each stage of development and production.
- the process is often referred to as “listening to the voice of the customer”
What is price inelastic
When a product is prices inelastic and prices are increased will result in increased product revenue and operating profits.
- when the demand for a product is price inelastic, a change in price will not affect the demand for the product.
What is target pricing.
Is generally used in a competitive environment to enable businesses to manage operations profitability.
- represents the maximum allowable price that can be charged for the product or service.
- is an estimate of the amount that potential customer would be willing to pay based on their value perceptions.
