# Shared Flashcard Set

## Details

Cost Accounting
Chapter 3
15
Accounting
06/08/2010

Term
 Cost-Volume-Profit (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
Term
 Simplifying Assumptions of CVP Analysis
Definition
 -Costs are either fixed or variable-units produced=units sold-relationship between revenues and costs are linear
Term
 CVP Simplified Income Model
Definition
 Revenues - Costs = Income
Term
 Variable Cost (VC)
Definition
 Remains constant per unit and varies in total
Term
 Fixed Cost (FC)
Definition
 Remains constant in total but varies per unit
Term
 Total Cost (TC)
Definition
 TC=VC+FC
Term
 CVP Income Calculation
Definition
 Sales-VC-FC=Income
Term
 Breakeven Calculation
Definition
 Break Even Units (BEu) = FC/Contribution Margin (CM)
Term
 Contribution Margin
Definition
 CM= Sales Price per unit (SP)- VC (per unit)
Term
 Contribution Margin Income Statement
Definition
 Sales- XXLess: VC- (XX)Contribution Margin XXLess: Fixed Cost (XX)Income Before Taxes- XXIncome Tax Expense (XX)Net Income XX
Term
 Alternative Break Even Calculation
Definition
 BEu = FC/CM% where CM%- CM/SP
Term
 Income to Earn Desired Profit (DP)
Definition
 DPu = (FC+DP)/CM ignores taxTo accommodate tax DP/(1-TR)=DP before income tax
Term
 Multiple Product CVP
Definition
 When you have multiple products, weight their contribution margin by their production percentage to get contribution from each product line.
Term
 Calculation for WACMProduct A: sp 25 vc 20 mix .6Product B: sp 40 vc 30 mix .4
Definition
 Product A CM=25-20=5 x Mix=.6 WCMa=3Product B VC=40-30=10 x Mix=.4 WCMb=4WACM=7 so CM= 7 for each product hereon out due to weighting, separate out.
Term
 Operating Leverage
Definition
 The trade-off 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
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