Term
CostVolumeProfit (CVP) Analysis 

Definition
Assists managers in understanding the behavior of a product's total cost, total revenues, and operating income as changes occur in that products output level, selling price, variable cost, fixed cost 


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Simplifying Assumptions of CVP Analysis 

Definition
Costs are either fixed or variable units produced=units sold relationship between revenues and costs are linear 


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CVP Simplified Income Model 

Definition
Revenues  Costs = Income 


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Definition
Remains constant per unit and varies in total 


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Definition
Remains constant in total but varies per unit 


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Definition
Break Even Units (BEu) = FC/Contribution Margin (CM) 


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Definition
CM= Sales Price per unit (SP) VC (per unit) 


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Contribution Margin Income Statement 

Definition
Sales XX Less: VC (XX) Contribution Margin XX Less: Fixed Cost (XX) Income Before Taxes XX Income Tax Expense (XX) Net Income XX 


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Alternative Break Even Calculation 

Definition
BEu = FC/CM% where CM% CM/SP 


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Income to Earn Desired Profit (DP) 

Definition
DPu = (FC+DP)/CM ignores tax To accommodate tax DP/(1TR)=DP before income tax 


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Definition
When you have multiple products, weight their contribution margin by their production percentage to get contribution from each product line. 


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Calculation for WACM Product A: sp 25 vc 20 mix .6 Product B: sp 40 vc 30 mix .4 

Definition
Product A CM=2520=5 x Mix=.6 WCMa=3 Product B VC=4030=10 x Mix=.4 WCMb=4 WACM=7 so CM= 7 for each product hereon out due to weighting, separate out. 


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Definition
The tradeoff of FC and VC. If you increase FC to decrease VC, you can increase profit if you sell a lot of product, however, if you don't sell much, you have much higher costs to pay, despite not producing much. Risk vs. Reward 

