# chapter 5

**Discipline:** Accounting

**Type of Paper:** Question-Answer

**Academic Level:** Undergrad. (yrs 3-4)

**Paper Format:** APA

**Pages:**1

**Words:**275

Question

**1. Selling prices**

2. Sales volume

3. Unit variable costs

4. Total fixed costs

5. Mix of products sold

2. Sales volume

3. Unit variable costs

4. Total fixed costs

5. Mix of products sold

the contribution income statement helps judge the impact on profits of changes in what 3 things

**selling price cost volume**

the cm is the amount available to cover _______ _______ and the provide ___ for the period.

**fixed expenses profit**

break-even point

**the level of sales at which profit is 0**

once the break even point is reached, what is true about tent operating income?

**it will increase by the amount of the unit contribution margin for each additional unit sold**

Contribution format income statement equation

**Profit=(Sales - Variable expense) - Fixed expense**

unit CM formula

**selling price per unit - variable expenses per unit**

Cost-Volume-Profit Graph

**A graph showing the relationship between costs, volume, and profits.**

highlights CVP relationships over wide ranges of activity

highlights CVP relationships over wide ranges of activity

3 steps to prepare C-V-P graph

**1) draw horizontal line at fixed cost 2) choose some sales volume and plot the point for total expense at that volume- then draw line back to where the fixed expenses intersect y axis 3) choose some level of activity and plot the point representing total sales dollars at that activity level**

equation for a profit graph

**profit= unit CM X Q - fixed expenses**

CM ratio formula

**CM ratio= contribution margin/ sales**

cm ratio for one unit

**unit cm/ unit selling price**

equation to express the effect of a change in sales on the CM

change in cm= cm ratio X change in sales

equation showing relationship between profit and cm ratio

**profit= cm ratio X sales - fixed expenses**

variable expense ratio

**variable expenses/ sales**

**can also do per unit**

Incremental analysis

**Consider only the revenue, cost, and volume that will change if a new program is implemented**

Target Profit Analysis

**Estimating what sales volume is needed to achieve a specific target profit.**

basic profit equation (can be used to find the sales volume required to attain a target profit)

**profit= unit cm x q - fixed expenses**

formula fo target profit analysis (gives units to sell)

**unit sales to attain target profit= TP + FE / unit CM**

formula for target profit analysis (gives sales dollars)

**sales dollars to attain target profit= TP+FE/ CM ratio**

Margin of safety

**The excess of budgeted (or actual) dollar sales over the break-even dollar sales**

**the amount by which sales can drop BEFORE losses are incurred**

margin of safety in dollars (formula)

**mos in $= total budgeted (or actual) sales - break even sales**

margin of safety percentage (formula)

**mos %= MOS in $/ total budgeted (or actual) sales in $**

cost structure refers to the relative proportion or what?

**fixed and variable costs in an orgnaization**

commission based on sales dollars can lead to what?

**lower profits**

what can commissions be based on to maximize a company's profit?

**contribution margins**

4 assumptions we make in CVP analysis

**1) selling price is constant 2) costs are linear and can be accurately divided into variable/fixed elements 3) sales mix is constant 4) inventories do not change**