Notes Chapter 6

Notes Chapter 6 - Notes Chapter 6: Cost-Volume-Profit...

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Notes Chapter 6: Cost-Volume-Profit Relationships I. The Basics of Cost-Volume-Profit Relationships a. Contribution margin: the amount remaining from sales revenue after variable expenses have been deducted a.i. CM = Sales – variable expenses a.ii. Break even point: the level of sales at which profit is zero. b. CVP Graphs: highlights CVP relationships over wide ranges of activity b.i. Draw line parallel to volume axis to represent total fixed expenses b.ii. Choose a volume of unit sales and plot point representing total EXPENSES. Draw a line to the point where fixed expense line intersects dollars axis b.iii. Choose a volume of unit sales and plot point representing total SALES. Draw a line back to the origin. b.iii.1. Where these lines intersect is the break-even point. c. Contribution Margin Ratio (CM Ratio)=contribution margin/sales d. CM Ratio=unit contribution margin/unit selling price d.i. CM Ratio shows how the contribution margin will be affected by a change in total sales e. f.
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Notes Chapter 6 - Notes Chapter 6: Cost-Volume-Profit...

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