Ch 5

Juvenal Jaimes
Flashcards by Juvenal Jaimes, updated more than 1 year ago
Juvenal Jaimes
Created by Juvenal Jaimes about 5 years ago
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Cost-Volume-Profit Relationships

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Question Answer
What is a break-even point? The level of sales at which profit is zero.
What is the contribution margin ratio (CM ratio)? A ratio computed by dividing contribution margin by dollar sales.
What is a cost-volume-profit (CVP) graph? A 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.
What's a degree of operatating leverage? A measure, at a given level of sales, of how a percentage change in sales will affect profits. The degree of operating leverage is computed by dividing contribution margin by net operating income.
What is incremental analysis? Any analytical approach that focuses only on those costs and revenues that change as a result of decision.
What is a margin of safety? The excess of budgeted or actual dollar sales over the break-even dollar sales.
What is operating leverage? A measure of how sensitive net operating income is to a given percentage change in dollar sales.
What is sales mix? The 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.
What is a target profit analysis? Estimating what sales volume is needed to achieve a specific target profit.
What is a variable expense ratio? A ratio computed by dividing variable expenses by dollar sales.
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