Chapter5: Cost-Volume-Profit Relationships

The flashcards below were created by user gabo on FreezingBlue Flashcards.

  1. Break-even point
    The level of sales at which profit is zero. (p. 186)
  2. Contribution margin ratio (CM ratio)
    A ratio computed by dividing contribution margin by dollar sales. (p. 191)
  3. Cost-volume-profit (CVP) graph
    A graphical representation of the relationships between an organization’s revenues, costs, and profits on the one hand and its sales volume on the other hand. (p. 188)
  4. Degree of operating leverage
    A measure, at a given level of sales, of how a percentage change in sales will affect profits. The degree of operating leverage is computed by dividing contribution margin by net operating income. (p. 202)
  5. Incremental analysis
    An analytical approach that focuses only on those costs and revenues that change as a result of a decision. (p. 193)p. 211
  6. Margin of safety
    The excess of budgeted or actual dollar sales over the break-even dollar sales. (p. 199)
  7. Operating leverage
    A measure of how sensitive net operating income is to a given percentage change in dollar sales. (p. 202)
  8. Sales mix
    The relative proportions in which a company’s products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales. (p. 205)
  9. Target profit analysis
    Estimating what sales volume is needed to achieve a specific target profit. (p. 196)
  10. Variable expense ratio
    A ratio computed by dividing variable expenses by dollar sales (p. 192)
Card Set
Chapter5: Cost-Volume-Profit Relationships
Key definitions
Show Answers