Chapter 4 - Cost Volume Profit Analysis Flashcards
What is contribution margin?
The difference between revenue and variable cost.
Contribution margin = Sales - Variable costs
Represents the contribution made to cover fixed costs and profit.
How to calculate contribution margin ratio?
Contribution margin ratio = Contribution margin/ Sales
What is the break-even point?
The point where total revenue equals total cost (i.e., the point of zero profit).
What is the formula for operating income?
Operating income = Sales - Total variable expenses - Total fixed expenses
What is the break-even formula for units?
Break even = Fixed costs / Contribution margin (per unit)
How is operating income calculated?
Operating income = (Price * Units) - (Unit variable cost * Units) - Total fixed cost
What is Sales mix?
Sales mix is the relative combination of products being sold by a firm. The sales mix is measured in units sold.
What is Margin of Safety?
The excess of budgeted or actual sales over break-even sales.
Margin of safety in units = Actual sales in units – Break-even sales in units
What is the break-even formula for revenue?
Break-even revenue = total fixed costs /contribution margin ratio.
What is total contribution margin divided by sales revenue?
The contribution margin ratio.
What is the break-even point?
The point at which total sales equal total cost.
Suppose the contribution margin per unit decreases. What will be the effect on the break-even point in units?
The units will increase.
By what amount can sales decline before losses are incurred?
By the margin of safety.
