Cost volume profit Flashcards
break even point
FC/ SP-VC
FC/contribution per unit
level of activity where ther ie neither profit nor loss
C/S ratio
contribution per unit/ SP
negatives of CVP
- non-linear relationship
- multi product business
what does a non-linear relationship mean
changes in output don’t change in direct proportion to changes in input
contribution
SP-VC
profit before fixed costs
contribution margin ratio
contribution per unit/ SP per unit x 100%
margin of safety
BE sales/ expected sales
indicates perentage of how much the forecast exceeds or falls short of t
target profit
equation
(Fixed costs + required profit)/ contribution per unit
Target profit (T)
the required number of units of output to achieve the target profit
operating gearing
contribution/ profit
extent to whcih firms operating costs are fixed rather than variable
multi-product BE
WACMU
diverse line with different products
WACMU
fixed costs/ weighted average contribution margin per unit
short-term operations decisions
relevant costs to consider
cash flows, future costs and revenues, differential costs and revenues
spare capacity
relevant cost of making the product in-house = variable cost of internal manufacture
qualitative factors
outsourcing needs to consider
- external suppliers
- specialist skills
- alternative uses
- social impact
- legal
- confidentiality
- customer perception
