Cost-Volume-Profit
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16 terms
Terms | Definitions |
|---|---|
 cost behavior analysis | study of how specific costs repond to changes in the level of business activity |
| activity index | the activity that causes changes in the behavior of costs |
| break-even point | the level of activity at which total revenues equal total costs |
| contribution margin | the amount of revenue remaining after deducting variable costs |
| contribution margin per unit | the amount of revenue remaining per unit after deducting variable costs; calculated as unit selling price minus unit variable costs |
| contribution margin ratio | the percentage of each dollar of sales that is available to apply to fixed costs; calculated as contribution margin per unit divided by unit selling price |
| cost-volume-profit analysis | the study of the effects of changes in costs and volume on a company's profits |
| cost-volume-profit graph | a graph showing the relationship between costs, volume, and profit |
| cost-volume-profit income statement | a statement for internal use that classifies costs as fixed or variable and reports contribution margin in the body of the statement |
| fixed costs | costs that remain the same in total regardless of changes in the activity level |
| high-low method | a mathematical method that uses the total costs incurred at the high and low levels of activity to classify mixed costs into fixed and variable components |
| margin of safety | the difference between actual or expected sales and sales at the break-even point |
| mixed costs | costs that contain both a variable and a fixed cost element and change in total but not proportionately with changes in the activity level |
| relevent range | the range of the activity index over which the company expects to operate during the year |
| target net income | the income objectives set my management |
| variable costs | costs that vary in total directly and proportionately with changes in the activity level |
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