section 13 Flashcards
CVP
cost volume profit
understanding how a company’s various costs behave with changes in sales volume allows a company’s management to understand
the effect any changes in sales volume will have on profits
a company’s relevant range in the context of CVP analysis refers to a company’s
range of reasonably anticipated production/sales volume for a period of time
variable costs per unit vary…and are fixed…..
in total and are fixed per unit within the relevant range
as the vol of units sold decreases within the relevant range, the fixed cost per unit sold
increases
as the vol of units sold increases within the relevant range, the variable cost per unit sold typically
remains the same
in doing simple CVP analysis it is necessary that every cost of a company
be designated as either variable or fixed
in simple CVP analysis all costs must be designated as either
perfectly fixed or variable
what is a contribution margin?
sales revenues
—
variable costs (product or period)
what is the variable cost ratio?
% of sales revenues
what is contribution margin per unit?
sales price per unit
—
variable cost per unit
what is contribution margin ratio?
contribution margin as a percentage of total sales revenue
margin of safety
the amount of decreased revenues that could be incurred before a business turns unprofitable
variable cost ratio
VC
divided by
SR
the scatter-graph method refers to an approach used to
determine fixed and variable components of a mixed cost
with changes in manufacturing volume, direct material costs for a manufacturing company would most commonly behave as
variable costs
when performing basic CVP analysis, variable costs are assumed to be
constant on a per unit basis within the relevant range
fixed costs per unit decrease with
increases in the volume of production
mixed costs are costs which have both
a fixed and variable cost component
the scattergraph method is an approach which can be used to determine both the
total fixed cost component and the variable cost per unit component of a mixed cost
contribution margin equals
net sales revenues
minus
total variable costs (product and period)
CVP analysis is a useful tool when seeking to understand the effects of
product pricing, costs of operations and the volume of sales on a business profitability
The slope of Sales Revenue =
the sales price per unit
variable cost
a cost that varies in total with changes in volume
