Understanding Cost, Volume, and Profit: CVP Analysis, Quizzes of Management Accounting

Download Understanding Cost, Volume, and Profit: CVP Analysis and more Quizzes Management Accounting in PDF only on Docsity! TERM 1 Cost Volume Profit (CVP) DEFINITION 1 - tool that helps managers understand the relationships among cost, volume, and profit. CVP analysis focuses on how profits are affected by the following five factors selling prices sales volume total fixed costs mix of products sold TERM 2 Contribution Margin DEFINITION 2 amount remaining from sales revenue after variable expenses have been deducted. The amount available to cover fixed expenses and then to provide profits for the period Sales - Variable Costs TERM 3 Unit CM DEFINITION 3 Unit CM = Selling price per unit - Variable expenses per unit (P - V) TERM 4 Contribution Margin Ratio DEFINITION 4 Contribution Margin / Sales or Unit CM / Price shows how the contribution margin will be affected by a change in total sales ; as a percentage of sales also can be computed by 1 - VC / S (Variable Cost Ratio) TERM 5 Relationship between CM and Profit DEFINITION 5 Profit = CM ratio x Sales - Fixed Expenses TERM 6 Variable expense ratio DEFINITION 6 Variable Costs / Total Sales can also be computed using per unit data Variable expense per unit / unit selling price TERM 7 Break Even Point Analysis DEFINITION 7 -Break even point is the point of no profit and no loss, provides managers with insights into profit planning. Can be computed in three ways The Equation Approach The Contribution Approach The Graphical Approach TERM 8 The Equation Approach DEFINITION 8 - based on the cost - volume equation, which shows the relationships among sales, variable and fixed costs, and net income:S = VC + FC + NI at the break even volume, S = VC + FC + 0 Defining X = volume in Units written in terms of x : px = vx + FC TERM 9 Contribution Margin Approach DEFINITION 9 -based on solving the cost -volume equation. Solving the equation px = vx + FC for x yields B.E.P in Units = FC / Unit CM B.E.P in Dollars = FC / CM Ratio TERM 10 Break Even Point in Units DEFINITION 10 Fixed Costs / Unit CM