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BUS 371 CH 5 KEY TERMS
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- 1Break-even pointThe level of sales at which profit is zero.
- 2Contribution margin ratio (CM ratio)A ratio computed by dividing contribution margin by sales.
- 3Cost-volume-profit (CVP) graphA graphical representation of the relationships between an organization’s revenues, costs, and profits on the one hand and its sales volume on the other hand.
- 4Degree of operating leverageA measure, at a given level of sales, of how a percentage change in salesvolume will affect profits. The degree of operating leverage is computed by dividing contribution margin by net operating income.
- 5Incremental analysisAn analytical approach that focuses only on those costs and revenues that change as a result of a decision.
- 6Margin of safetyThe excess of budgeted or actual dollar sales over the break-even dollar sales.
- 7Operating leverageA measure of how sensitive net operating income is to a given percentage change in unit sales.
- 8Sales mixThe relative proportions in which a company’s products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales.
- 9Target profit analysisEstimating the level of sales needed to achieve a desired target profit.
- 10Variable expense ratioA ratio computed by dividing variable expenses by sales.
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