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pgs 81-94 and 111-130

CVP analysis

study of the relations among revenues, costs and volume and their effect on profit.

Unit contribution margin

Difference between revenues per unit (price) and variable costs per unit

total contribution margin

Difference between revenues and total variable costs

contribution margin ratio

Contribution margin as a percentage of sales revenue

breakeven point

Volume level at which profits equal zero

operating leverage

Extent to which an organization's cost structure is made up of fixed costs.

margin of safety

The excess of projected or actual sales over the break-even volume.

margin of safety percentage

The excess of projected or actual sales over the break-even volume expressed as a percentage of the break-even volume.

assumption and limitation of CVP analysis


differential analysis

Process of estimating revenues and costs of alternative actions available to decision makers and of comparing these estimates to the status quo.

differential costs

With two or more alternatives, costs that differ among or between alternatives.

differential revenue

Revenues that change in response to a particular course of action.

full-cost fallacy

Sum of all costs of manufacturing and selling a unit or product (includes both fixed and variable costs).

sunk cost

Cost incurred in the past that cannot be changed by present or future decisions.

special order

Order that will not affect other sales and is usually a short-run occurrence.

short-run pricing

Period of time over which the capacity will be unchanged usually one year.

long-run pricing


life cycle costing


target costing

Equals the target price minus desired profit.

make vs. buy decision

Decision concerning whether to make needed goods internally or purchase them from outside sources.

opportunity cost

Forgone benefit from the best (forgone) alternative course of action.

contribution margin per unit of scarce resource

Sales price-Variable costs per unit

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