Ch 3 Flashcards
Cost-Volume-Profit Analysis
A Five-Step Decision-Making Process in Planning and Control-Revisited
- Identify the problem/uncertainties.
- Obtain information.
- Make predictions about the future.
- Make decisions by choosing between alternatives using cost-volume-profit (C V P) analysis.
- Implement the decision, evaluate performance, and learn.
Contribution Margin =
(1) Total Revenue – Total Variable Costs
(2) Contribution Margin per Unit x # of Units Sold
Contribution margin % (ratio) =
(1) Contribution Margin/Revenue
(2) Contribution margin per unit/selling price
Contribution Margin per unit=
Selling Price – Variable Cost Per Unit
Operating Income =
Contribution Margin – Fixed Costs
Equation Method:
Revenue – Variable Costs – Fixed Costs = Operating Income
CM (Contribution margin) Method:
[(S P x Q) – (V C x Q)] – F C = O I
Revenue=
Selling Price (S P) * Quantity of Units Sold (Q)
Variable Costs =
Unit Variable Costs (V C) * Quantity Of Units Sold (Q)
Operating Income (O I) =
Contribution Margin – Fixed Costs (F C)
Operating income=
Revenue- Variable cost- Fixed cost
BEP (break even point) is
that quantity of output sold at which total revenue equals total cost. Q so that OI= 0
Breakeven revenues =
F C / C M%
Breakeven units =
FC / C M per unit
After-tax profit (Net Income) =
Operating Income * (1 – Tax Rate)
Operating income=
Net Income/(1-Tax rate)
The margin of safety (M O S) measures
the distance between budgeted sales and breakeven (B E) sales
MOS=
Budgeted Sales – B E Sales
MOS Ratio =
MOS / Budgeted Sales
Looking at the MOS as a ratio instead of a value, does what?
removes the size of the firm from the output.
The cost structure is relationship of
fixed costs and variable costs to total costs.
Operating Leverage =
CM/Operating Income
Organizations with a high proportion of fixed costs in their cost structure have
high operating leverage.
In cost structures with high operating leverage, small decreases in sales result in
in large decreases in operating income.
