Managerial Accounting-Chapter 6 Cost-Volume-Profit Analysis

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  1. Cost-Volume-Profit (CVP) Analysis (p. 120)
    A tool that focuses on the relationships among a company's profits and (1) the prices of products or services, (2) the volume of products or services, (3) the per-unit variable costs, (4) the total fixed costs, and (5) the mix of products or services produced.
  2. Gross Profit (p. 121)
    The difference between sales and cost of goods sold.
  3. Contribution Margin Per Unit (p. 122)
    The sales price per unit of product, less all variable costs to produce and sell the unit of product; used to calculate the change in contribution margin resulting from a change in unit sales.

    chart?chf=bg,s,00000000&cht=tx&chl=%5Cfrac%7BContributionMargin%7D%7BUnits%20Sold%7D&chs=300x74
  4. Contribution Margin Ratio (p. 123)
    The contribution margin divided by sales; used to calculate the change in contribution margin resulting from a dollar change in sales.
  5. Break-even point (p. 126)
    The level of sales at which the contribution margin just covers fixed costs and income is equal to zero.

    (SP-VC)(x)=FC

    X = chart?chf=bg,s,00000000&cht=tx&chl=%5Cfrac%7BFC%7D%7BCM&chs=64x68

    • Where SP = Sales price per unit
    •           VC = Variable costs per unit
    •           FC = Total Fixed costs
    •           X = Number of units sold
  6. Sales dollars needed to break even (p. 126)
    chart?chf=bg,s,00000000&cht=tx&chl=%5Cfrac%7BFixedCosts%7D%7BContributionMarginRatio%7D&chs=380x74
  7. Break-even (units) for a company with multiple products
    chart?chf=bg,s,00000000&cht=tx&chl=%5Cfrac%7BFixedCosts%7D%7BWeightedAverageContributionMarginPerUnit%7D&chs=686x76
  8. Sales Volume to reach a target profit before tax [single product] (p. 128)
    chart?chf=bg,s,00000000&cht=tx&chl=%5Cfrac%7BFC%2BTP(before%20tax)%7D%7BCM%7D&chs=294x78
  9. Sales Volume to reach a target profit before tax [Multiple product] (p. 129)
  10. chart?chf=bg,s,00000000&cht=tx&chl=%5Cfrac%7B(Fixed%20Cost%2BTarget%20Profit)%7D%7BWeighted-AverageContributionMarginPerUnit%7D&chs=708x84
  11. Before-tax profit (p. 129)
  12. chart?chf=bg,s,00000000&cht=tx&chl=%5Cfrac%7BAfter-tax%20profit%7D%7B(1-TaxRate)&chs=254x84
  13. Operating Leverage (p. 130)
    The contribution margin divided by net income; used as an indicator of how sensitive net income is to a change in sales.

    chart?chf=bg,s,00000000&cht=tx&chl=%5Cfrac%7BContributionMargin%7D%7BNetOperatingIncome%7D&chs=320x82
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Managerial Accounting-Chapter 6 Cost-Volume-Profit Analysis
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Cost-Volume-Profit Analysis
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