ch7 vocab Flashcards
breakeven point
the sales level at which operating income is zero:
Total revenues = Total expenses
contribution margin
sales revenues minus variable expenses
contribution margin income statement
an income statement that groups costs by behavior rather than function; it can be used only by internal management
contribution margin per unit
the excess of the unit sales price over the variable cost per unit; also called unit contribution margin
contribution margin ratio
ratio of contribution margin to sales revenue
cost-volume-profit (CVP) analysis
expresses the relationships among costs, volume, and profit or loss
indifference point
the volume of sales at which a company would be indifferent between alternative cost structures because they would result in the same total cost
margin of safety
excess of expected sales over breakeven sales; the drop in sales a company can absorb without incurring an operating loss
operating leverage
the relative amount of fixed and variable costs that make up a firm’s total costs
operating leverage factor
at a given level of sales, the contribution margin divided by operating income; the operating leverage factor indicates the percentage change in operating income that will occur from a 1% change in sales volume
sales mix
the combination of products that make up total sales
sensitivity analysis
a “what-if” technique that asks what results will be if actual prices or costs change or if an underlying assumption changes
