Chapter5: Cost-Volume-Profit Relationships

The level of sales at which profit is zero. (p. 186)

A ratio computed by dividing contribution margin by dollar sales. (p. 191)

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)

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)

An analytical approach that focuses only on those costs and revenues that change as a result of a decision. (p. 193)p. 211

The excess of budgeted or actual dollar sales over the break-even dollar sales. (p. 199)

A measure of how sensitive net operating income is to a given percentage change in dollar sales. (p. 202)

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)

Estimating what sales volume is needed to achieve a specific target profit. (p. 196)

A ratio computed by dividing variable expenses by dollar sales (p. 192)