When constructing a CVP graph the horizontal axis represents unit sales The

When constructing a cvp graph the horizontal axis

This preview shows page 2 - 4 out of 4 pages.

When constructing a CVP graph, the horizontal axis represents unit sales. The total amount of fixed expense is represented on a CVP graph at the point where the line crosses the y axis Considering that each product has its own unique sales price and contribution margin per unit, the contribution margin ratio approach to target profit analysis is likely the more easily applied approach by companies with multiple products. If operating leverage is high, a small percentage increase in sales can produce a much higher percentage increase in net operating income When concerning multiple products: a change in the sales mix will most likely result in a change to the break-even point, each product most likely creates a unique total of fixed costs, and each product most likely has a unique contribution margin
Image of page 2
To prepare a CVP graph, lines must be drawn representing total revenue, total expense, and total fixed expense Target profit analysis can be calculated using the formula method or the equation method. It is also one of the key uses of CVP analysis
Image of page 3
Image of page 4

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture