Week 5, LO 1 Demo - Week 5 Week 5 Skill Building...

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Week 5 Week 5 Skill Building Demonstration Problem 1 Explain how changes in activity affect contribution margin and net operating income . Learning Objective 1 Cost-volume-profit (CVP) analysis is a powerful tool that helps managers understand the relationships among cost, volume, and profit. CVP analysis focuses on how profits are affected by the following five factors: 1. Selling prices. 2. Sales volume. 3. Unit variable costs. 4. Total fixed costs. 5. Mix of products sold. We begin CVP analysis by looking at a contribution income statement. The contribution format income statement classifies costs according to their behavior. Below is an example of a contribution income statement: Contribution margin is the amount remaining from sales revenue after variable expenses have been deducted. Thus, it is the amount available to cover fixed expenses and then to provide profits for the period. If the contribution margin is not sufficient to cover the fixed
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This note was uploaded on 04/21/2011 for the course ACTG 211 taught by Professor Galvan during the Spring '11 term at Finger Lakes Community College.

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Week 5, LO 1 Demo - Week 5 Week 5 Skill Building...

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