# Ch 9

 Break-even analysis A technique to analyze the relationship among revenues, costs, and volume. It is also called cost-volume profit or CVP analysis Relevant Range The range of activity over which total fixed costs or per unit variable cost (or both) do not vary. Fixed costs Costs that stay the same in total over the relevant range but change inversely on a per unit basis as activity changes Step-fixed costs Costs that increase in total over wide, discrete steps Variable costs Costs that stay the same per unitÂ  but change directly in total with a change in activity over the relevant range. Total variable cost= Variable cost per unit X Number of units of activity Target Costing Controlling costs, decreasing profit margins, or both to meet or beat a predetermined price or reimbursement rate Break-even point The point where total revenues equal total costs Contribution Margin Per unit Per unit revenue minus per unit variable costs Incremental Costs Additional costs incurred solely as a result of an action or activity or a particular set of actions or activities Total contribution Margin Total revenues minus total variable costs Contribution Margin Rule If the contribution margin per unit is positive and no other additional costs will be incurred, then it is in the best financial interest of the organization to continue to provide additional units of that service even if the organization is not fully covering all of its other costs. On the other hand, if it is negative it is not in the best interest of the organization Avoidable Fixed cost A fixed cost that is avoided if a service is not provided. Example: Full-time nursing costs save if a service were closed Nonavoidable Fixed Costs A fixed cost that will remain even if a particular service is discontinued. Example: Full-time nursing costs in an organization that will continue, even though one of several services is dropped Common Costs Costs that benefit a number of services shared by all. Example: rent, utilities, and billing. Also called joint costs Product Margin Total contribution margin - Avoidable fixed costs. It represents the amount that a service contributes toward covering all other costs after it has covered the costs that are there solely because the service is offered (its total variable cost and avoidable fixed costs) and would not be there if the service were dropped Product Margin Decision Rule If a service's product margin is positive, the organization will be better off financially if it continues with the service, ceteris paribus. Conversely, if a service's product margin is negative, the organization will be better off financially if it discontinues the service, ceteris paribus AuthorAnonymous ID257570 Card SetCh 9 Descriptionh353 CH 9 cards Updated2014-01-20T22:59:41Z Show Answers