Chapter 3 Flashcards

1
Q

What is the break-even point?

A

Where the profit equals zero

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2
Q

What are 3 ways of calculating the break-even point?

A

Equation method, contribution margin per unit, contribution margin ratio

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3
Q

What is the equation method?

A

Sales-variable costs-fixed costs = profit

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4
Q

How do you find the contribution margin per unit?

A

Sales price - variable costs

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5
Q

How do you find the break-even point in units?

A

Fixed costs + target profit/contribution margin per unit

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6
Q

How do you calculate the break-even point using the contribution margin ratio?

A

Contribution margin/sales
It can be either in units or in dollars, just stay consistent

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7
Q

How can you reach a desired profit?

A

Sales-variable costs-fixed costs = profit

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8
Q

What is cost-plus priving?

A

Price products at variable cost plus some percentageW

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9
Q

What is prestige pricing?

A

Price products with a premium since the product is new or has a name brand

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10
Q

What is target costS?

A

Price products at a market price then control costs to be profitable

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11
Q

What is the margin of safety?

A

Measures the cushion between budgeted sales and break even sales

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12
Q

How do you calculate the margin of safety as a percentage?

A

Budgeted sales - break even sales/budgeted sales

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13
Q

What are limitations of the break even?

A

Selling price is constant, costs are linear, all CVP variables are within the relevant range

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