Chapter 3: Cost-Volume-Profit Analysis Flashcards
What is the basic formula to find operating income?
Revenue
-
Variable Costs
-
Fixed Costs
What is the formula to find revenue?
Selling price
x
Quantity sold
What is the formula to find variable costs?
Variable cost per unit
x
Quantity Sold
What is contribution margin?
Revenue
-
Variable costs
The portion of income used to cover fixed costs and make a profit.
What is contribution margin per unit?
Unit price
-
Unit variable cost
What is another way to calculate contribution margin?
Unit contribution margin
x
Units sold
What is the contribution margin ratio?
Unit contribution margin
/
Unit Price
What is the breakeven point?
Sales
-
Variable costs
-
Fixed costs
=
0
How do you calculate the breakeven point in units?
Fixed costs
/
Contribution margin per unit
How do you calculate the breakeven point in revenues?
Fixed costs
/
Contribution margin ratio (%)
How do you calculate the amount of units you need to sell to make a specific profit?
Fixed Costs
+
Operating Income
/
Contribution margin per unit
How do you calculate net income (after-tax income)?
Operating income
x
1 - Tax Rate
How do you calcuate the operating income with tax information?
Net Income
/
1 - Tax Rate
What is margin of safety?
Measures the distance between budgeted sales and breakeven sales–and is an indicator of risk.
Budgeted Sales
-
Break even Sales
How is the margin of safety ratio calculated?
Margin of safety
/
Budgeted sales
What is operating leverage?
The effect that fixed costs have on changes in operating income as changes occur in units sold, expressed as changes in contribution margin.
How is the degree of operating leverage calculated?
What is the difference in its components?
Contribution margin
/
Operating income
The only difference in these two items is fixed cost.
