MANAGERIAL ACCOUNTING – 12th Edition

CH 6 TERMS

Break-even point – The level of sales at which profit is zero.

Contribution margin method – A method of computing the break-even point in which the fixed expenses are divided by the contribution margin per unit.

Contribution margin ratio (CM ratio) – The contribution margin as a percentage of total sales.

Cost-volume profit (CVP) graph – The relationships between an organization’s revenues, costs, and level of activity presented in graphic from.

Degree of operating leverage – A measure, at a given level of sales, of how a percentage change in sales volume will affect profit.

Equation method – A method of computing the break-even point that relies on the equation Sales = Variable expenses + Fixed expenses + Profits.

Incremental analysis – An analytical approach that focuses only on those items of revenue, cost, and volume that will change as a result of a decision.

Margin of safety – The excess of budgeted (or actual) sales over the break-even volume of sales.

Operating leverage – A measure of how sensitive net operating income is given percentage in change. It is computed by dividing the contribution margin by net operating income.

Sales mix – The relative proportions in which a company’s products are sold.

Variable Expense Ratio – A ratio computed by divided variable expenses by dollar sales.