Fall 2006—Accounting 302—Exam 2 Review Sheet
Chapter 3
1.
CostVolume 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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 Spring '08
 Stovall
 Cost Accounting, Revenue, Contribution Margin

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