Cost-Volume-Profit (CVP)


accrual basis accounting

recognizing revenue when earned and recording expenses when incurred regardless of the cash received or paid


slowdown or stoppage in one stage of a process that lessens the output of the entire system

break-even point

point at which a company's total revenue is equal to its total cost, which means zero profit and zero loss

cash basis accounting

recognizing and recording revenue or expenses in the period when cash is received or paid


amount or percentage compensation a salesperson receives for selling a product or service to a customer

contribution margin

amount left after a company's variable costs are subtracted from its total sales for a given period. It is an essential component of a break-even analysis.

contribution margin ratio

difference between a company's sales and variable expenses, expressed as a percentage of sales. It represents the total earnings available to pay for fixed expenses and generate a profit.


resource, usually a currency amount, that is required or used to buy a good or service

cost of goods sold (COGS)

total money spent to purchase or produce the products that were sold during an accounting period

cost structure

proportion of a company's fixed and variable expenses in relation to its overall operation expenses

cost-volume-profit (CVP) analysis

accounting method used to examine the connection between cost, volume, and profit when changes occur in activity level, fixed costs, selling price, or variable costs

direct labor cost

payment and benefits for employees involved with converting the direct materials into the finished product

direct materials

raw goods that can be traced directly to, or easily identified with, a specific product

fixed cost

expense of operating a company for a specific period of time that remains unchanged despite changes in the company's activity level

income statement

one of the four major financial statements; it measures revenues minus expenses to arrive at the net income or net loss during a specific time period

indirect manufacturing cost

cost that is part of the manufacturing process but is not attributable to a single unit; for example, the salary of a security guard

manufacturing costs

expenses a company incurs when turning raw materials into its finished products

operating leverage

effect that fixed costs have on a company’s operating income; it can be calculated by dividing a company's contribution margin by its net income. The more fixed costs a company has compared to variable costs, the higher its operating leverage.


amount of income left after all expenses have been deducted

sales mix

proportion of different products or services, usually varying in profitability, that makes up a company's total sales

sales mix variance

difference between the planned proportion of products or services and the actual proportion of products or services as reflected in total sales

selling expenses

costs incurred by a company's sales division in the process of selling a product or service

variable cost

expense that increases or decreases with the level of production


total amount or quantity of something; usually used to measure the number of products and services sold