CH 6 Flashcards
Cost Structure?
○ Relative proportion of fixed and variable costs in an organization.
When is there a LOSS for the period?
Where contribution margin is not sufficient to cover fixed expenses
Profit = : with “sales” in equation
(Sales - Variable Expenses) - Fixed Expenses
Profit= : with “Unit CM” in equation
Unit CM x Q(uantity) - Fixed Expenses
What is the Cost-volume-profit (CVP) Graph
A graph of the relationships between an org’s revenues, costs, and profits on the y axis and its sales volume on the x axis
Break Even Point?
where total revenue and total expense lines cross OR when Profit equals 0
If sales BELOW break even point, then it means…
Company suffers a loss
Contribution Margin Ratio (Equation) + what does it track?
CM/Sales
–> what percentage of sales becomes CM
Variable Expense Ratio (Equation)
Variable Expenses/Sales
Change in CM (Equation)
CM Ratio X Change in Sales
What does a CM ratio of 40% mean
for each $ increase of sales, total contribution margin will increase by 40 cents
Profit=: with “CM ratio”
CM ratio x Sales - Fixed Expenses
Change in Profit =:
CM Ratio x Change in Sales - Change in Fixed Expenses
“Unit” Sales to break even = ?
Fixed Sales/Unit CM
“Dollar” Sales to Break Even =?
Fixed expenses/CM Ratio
Unit sales to attain target product =?
(Target Profit + Fixed Expenses)/Unit CM
Dollar Sales to attain target product =?
(Target Profit + fixed expenses)/CM Ratio
Margin of Safety def?
The excess of budgeted or actual dollar sales over the break-even dollar sales
Margin of safety in dollars =
Total budgeted/actual sales - break even sales
Margin of safety %age =
Margin of safety in dollars/total budgeted or actual sales in dollars
Operating Leverage (OL)
A measure of how sensitive net operating income is to a given percentage change in unit sales.
If OL is hight, then a small Increase in unit sales will produce…
a much larger %age change in net operating income
Degree of OL (Equa) =
Contribution margin/net operating income
%age change in net operating income (Equa) =
Degree of OL x %age change in sales
Sales Mix?
relative proportions in which a company’s products are sold
