just to know

7 flashcards · Other · by Daniel F.

1. Cost-Volume Profit Analysis

   analyzes how volumes/quantities, revenues and costs, affect a firm's profit levels help managers understand how their decisions affect: Operating income = The adjusted revenue of a company after subtracting depreciation and other expenses (in other words, the profit) volume product mix price uvc fc Operating risk = How volatile operating income is depending on different output levels cost structure, OL

2. Steps of CVP analysis

   Profit function, contribution income statement, and CVP graph Computation of the break even and target profit points Assessment of operating risk Sensitivity analyses

3. Contribution Income Statement

   The contribution income statement on the other hand, looks at the contribution margin* by grouping expenses by behavior (fixed/variable) as opposed to inventoriability manufacturing/period) Where Contribution margin measures how profitable a product is to produce

4. Margin of Safety Ratio

   ratio measuring the gap between sales and the break even point percentage of IO that can be lost

5. Operating Leverage

   measure of how sensitive Operating income is to changes in revenues

6. Cost-Volume Profit analysis process makes the following simplifying assumptions

   the price is constant; the unit variable cost is constant; fixed costs (net of fixed revenues) are constant; there is a single cost driver or the product mix is constant; there is no inventory (sales equal production).

7. Purposes of Budgeting

   Budgets specify short-term financial objectives (usually within a year), and the amount of resources needed to achieve those objectives