Chapter 3 Flashcards
What is CVP?
CVP (cost volume Profit) explores the relations among revenue, cost, and volume and their effect on profits
Profit Margin
Total Revenues - Total Costs
= (Sales Price/unit)(units)- (Variable cost/unit)(unit) - Total FC
=(Sales Price/unit)(units)- (Variable cost/unit)(unit) + Total FC
Contribution Margin
= Sales Price - VC
Contribution Margin Ratio
CM/ Sales Price
Breakeven in units
FC/ CM/unit
Breakeven in Sales $
FC/ CM Ratio
Target Profit in units
FC + TP / CM/unit
Target Profit in Sales $
FC +TP/ CM Ratio
Operating Leverage
CM/ Operating Profit
Higher Operating Leverage from Higher CM = Lower VC =
Higher FC
Lower Operating Leverage from Lower CM = Higher VC =
Lower FC
Margin of Safety
the excess of projected or actual sales volume over break-even volume
or
The excess of projected or actual sales revenue over break-even revenue
Sales - Break Even
Target Operating Profit
TOP divided (1-Tax rate)
Weighted CM
Sales * CM/unit
