Cost-Volume Profit Relationships
Contribution Margin =
Sales - Variable Costs
What is the break-even point?
When Revenue = Costs.
What is target profit?
The expected amount of profit that the managers of a business expect to achieve.
What is the other name for the Cost-Volume-Profit Chart?
Break-Even Chart
Operating Leverage =
Contribution Margin/Operating Income
Unit Contribution Margin =
Sales Price per Unit - Variable Cost per Unit
Fixed Costs/Unit Contribution Margin
How do you modify the break even sales equation to get target sales?
Add target profit.
If the total sales line is above the total cost line, is it an operating profit or loss?
Operating Profit.
What is sales mix?
The relative distribution of sales among the products sold by companies.
Contribution Margin Ratio =
Contribution Margin/Sales
When fixed cost increases, then break-even (increases or decreases).
Increases.
What is target profit if:
Fixed Cost = 500,000
Unit Contribution Margin = 10
Sales = 60,000 units
$100,000
At what point does the total cost line start?
Total Fixed Costs.
What does margin of safety indicate?
The possible decrease in sales that may occur before an operating loss results.
Change in Operating Income =
Change in Sales Dollars * Contribution Margin Ratio
Contribution Margin Ration =
Unit Contribution Margin/Unit Selling Price
Find sales (units) if:
Fixed costs = 200,000
Target Profit = 100,000
Unit Selling Price = 75
Unit Variable Cost = 45
10,000 Units
What does the CVP chart show over variou leves of units sold?
sales, costs, and the related profit or loss
Percent Change in Operating Income =
Percent Change in Sales * Operating Leverage
Find the contribution margin ratio:
Contribution margin = $600,000
Sales = 2,400,000
25%
When unit variable cost decreases, break-even sales (increases, decreases, or stays the same)
Decreases.
Find sales (in dollars) if:
Fixed costs = 200,000
Target Profit = 100,000
Unit Selling Price = 75
Unit Variable Cost = 45
$750,000
What is on the vertical and horizontal axis of the CVP Chart?
Vertical: Sales and Costs
Horizontal: Units of Sales
Using the following information, find the unit selling price, unit variable cost, and unit contribution margin of product E (A+B):
Product A:
Unit Selling Price = 90
Unit Variable Cost = (70)
Units Sold = 8,000
Product B:
Unit Selling Price = 140
Unit Variable Cost = (95)
Units Sold = 2,000
Unit Selling Price = 100
Unit Variable Cost = (75)
Unit Contribution Margin = 25