3 Cost-Volume-Profit Analysis Free Online FlashCards

What does cost-volume-profit analysis estimate?

Cost-volume-profit analysis estimates how changes in sales volume, selling price, variable cost, or fixed cost affect operating income.

How is contribution margin per unit calculated?

Contribution margin per unit equals selling price per unit minus variable cost per unit: $P - V$.

What is the role of contribution margin?

Contribution margin covers fixed costs; once they are covered, additional contribution margin increases operating income.

What does the contribution margin ratio measure?

The contribution margin ratio is contribution margin per unit divided by selling price per unit: $\frac{P - V}{P}$. It is the share of each sales dollar available for fixed costs and profit.

How is operating income calculated in the one-product CVP model?

Operating income equals contribution margin minus fixed costs: $(P - V)Q - F$.

How do you calculate break-even units?

Break-even units equal fixed costs divided by contribution margin per unit: $\frac{F}{P - V}$.

How do you calculate break-even sales dollars?

Break-even sales dollars equal fixed costs divided by the contribution margin ratio: $\frac{F}{\text{CM ratio}}$.

How should a fractional break-even unit result be handled?

When break-even units are fractional, round up to the next whole unit to find the minimum sales needed to break even.

How do you calculate units needed for a target operating income?

Target-profit units equal fixed costs plus target operating income, divided by contribution margin per unit: $\frac{F + \text{target income}}{P - V}$.

How do you convert an after-tax profit goal for CVP analysis?

Convert an after-tax target to pretax operating income by dividing it by $1 - \text{tax rate}$, then use that pretax amount in the target-profit formula.

What happens to break-even if variable cost rises to $33 per unit?

With fixed costs of $\$40{,}000$, raising variable cost from $\$30$ to $\$33$ lowers contribution margin to $\$17$; break-even rises to $\lceil 40{,}000 / 17 \rceil = 2{,}353$ units.

What is the contribution margin of a 2 A : 1 B composite bundle?

A composite bundle represents a fixed sales mix. With two A units at $\$16$ contribution each and one B unit at $\$24$, the bundle contribution margin is $2(16) + 24 = \$56$.