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CVP ANALYSIS
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Terms in this set (14)
cost-volume-profit analysis
Estimates how changes in costs (both variable and fixed), sales volume, and proce affect a company's profit
Break-even point
Point where total revenue equals total costs
Contribution margin income statement
The income statement format that is based on the separation of costs into fixed and variable components
Contribution margin
Difference between sales and variable expenses
Variable cost ratio
Proportion of each sales dollar that must be used to cover variable costs
Contribution marging ratio
Proportion of each sale dollar available to cover fixed costs and provide for profit
Profit-volume graph
Visually portrays the relationship between profits and units sold
Cost-volume-profit graph
Depicts the relationship among cost, volume, and profits by plotting the total revenue line and the total cost line on a graph.
Sales mix
Relative combination of products being sold by a firm
Margin of safety
Units sold or the revenue earned above the break-even volume
Operating leverage
The use of fixed costs to extract higher percentage changes in profits as sales activity changes
Degree of operating leverage
Can be measured for a given level of sales by taking the ratio of contribution margin to operating income.
Indifference point
The quantity at which two systems produce the same operating income
Sensitivity analysis
Is a "what if" technique that examines the impact of changes in underlying assumptions on an answer.
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