Cost volume profit analysis Flashcards
Cost volume profit analysis examines…
the behaviour of total revenues, total costs and operating profit as changes occur in the output level, selling price or costs
Which two categories are total costs classified into
Variable costs (VC) and fixed costs (FC)
Operating profit (OP) equals…
Total revenues - Total cost
What does USP stand for?
Unit selling price
What does UVC stand for?
Unit variable costs
What does UCM stand for?
Unit contribution margin (USP-UVC)
What does FC stand for?
Fixed costs
What does Q stand for?
Quantity of output (units sold/manufactured)
What does OP stand for?
Operating profit
What does TOP stand for?
Target operating profit
Unit contribution equals…
UR (unit revenue) - UVC
The typical contribution margin format enables…
top and department managers to have a good initial sense of how well the department has managed its variable costs.
What is the breakeven point?
The quantity of output where total revenues and total cost are equal, that is, where the operating profit is zero
What is sensitivity analysis?
A what if technique that examines how a result will change if the original predicted data are not achieved or if any underlying assumption changes
What is the margin of safety?
The excess of budgeted revenues over the breakeven revenues.
