Introduction to cost behaviour and cost-volume-profit relationships

10 important questions on Introduction to cost behaviour and cost-volume-profit relationships

What is the cost-volume-profit (CVP) analysis?

That is the study of the effects of output volume on revenue (sales), expenses (costs), and net income (net profit).

What is the sales mix?

The relative proportions or combinations of quantities of products that constitute total sales.

What is the total contribution margin?

Total number of units sold times the contribution margin.
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How do you calculate the contribution-margin percentage(/ratio)?

Total contribution margin divided by sales or 100% minus the variable cost percentage.

What is the contribution margin?

A term used for either total contribution margin, unit contribution margin, or contribution margin percentage.

What is the incremental effect?

The change in total results (such as revenue, expenses, or income) under a new condition in comparison with some given or known condition.

What is the margin of safety?

Planned unit sales less the break-even unit sales; a measure of how far sales can fall below the planned level before losses occur.

What is the operating leverage?

The sensitivity of a firm's profit to changes in volume of sales.

What is the degree of operating leverage?

The ratio of contribution margin to profit defined at a specific volume of sales.

What is the cost of goods sold?

The cost of the merchandise that a company acquires or produces and sells.

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