Exam 2 study guide - Fall 2006-Accounting 302-Exam 2 Review...

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Fall 2006—Accounting 302—Exam 2 Review Sheet Chapter 3 1. Cost-Volume Profit Analysis a. Study of the relations among revenue, cost, and volume and their effect on profit b. Viewing CVP relationships in a graph gives managers a perspective that can be obtained in no other way. 2. Contribution Margin a. Total: the difference between revenues and total variable cost b. Per unit: difference between revenues per unit (price) and variable cost per unit. c. Ratio: contribution margin as a percentage of sales revenue i. CM Ratio = Contribution Margin / Sales 3. Breakeven a. Definition i. The point where total sales revenue equals total expenses (variable and fixed) ii. The point where total contribution margin equals total fixed expenses b. Equation approach i. Sales = Variable expenses + Fixed Expenses + Profit(at breakeven profit = 0) c. Contribution margin approach i. Breakeven volume (units) = (Fixed costs)/(Unit contribution margin) ii. Breakeven volume (sales) = (Fixed expenses)/(CM ratio) 4. CVP with target profit a. Equation approach i. Sales = Variable expense + Fixed expenses + Profit b. Contribution margin approach i. Units sold to get target profit = (fixed expenses + target profit)/ (Unit contribution margin) 5. Margin of safety a. Excess of budgeted (or actual) sales over the break even volume of sales. The amount by which sales can drop before losses begin to be incurred.
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Exam 2 study guide - Fall 2006-Accounting 302-Exam 2 Review...

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