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  1. break even point
    point of zero profit
  2. Two frequently used approaches to finding the Break Even Point
    • operating income approach
    • contribution margin approach
  3. operating income
    • income or profit before income taxes
    • Net Income / (1 - Tax Rate)
  4. net income
    operating income - income taxes
  5. variable product cost per unit
    direct materials + direct labor + variable overhead
  6. variable cost per unit
    direct materials + direct labor + variable overhead + variable selling expense
  7. constribution margin per unit (unit contribution margin)
    price - variable cost per unit (DM/DL/VO/VSE)
  8. contribution margin ratio
    contribution margin (price-variable cost per unit) / price OR (sales - total variable cost) / sales
  9. break even units
    Total fixed cost / (price - variable cost per unit)
  10. when does total revenue = total cost
    at the break even point
  11. contribution margin
    sales revenue - total variable costs
  12. number of units
    fixed costs / unit contribution margin
  13. to calculate operating income yield
    divide unit contribution margin into the target profit and add result to break even volume
  14. proportion of each sales dollar available to cover fixed costs and provide for profit
    contribution margin ratio (1 = contribution margin ratio + variable cost ratio)
  15. break even sales
    total fixed costs / contribution margin ratio
  16. multiple product income statement
    Sales/Variable Expenses/Contribution Margin/Direct Fixed Expenses/Product margin ---Separate

    Common Fixed Expenses subtracted from total to get Operating income
  17. direct fixed expenses
    fixed cost that can be traced to each segment and can be avoided if that segment doesn't exist
  18. common fixed expenses
    not traced to any segment and exist even if segment eliminated (senior management plant overhead etc)
  19. sales mix
    relative combination of products being sold. Can be ratio or % of total revenue
  20. profit volume graph
    portrays the relationship between profits and sales volume.

    operating income equation (OI = (price x units) - (unit variable cost x units) - fixed costs)
  21. cost volume profit graph
    relationship among cost volume and profits. graph total revenue line and total cost line.

    revenue = price x units

    total cost = (unit variable cost x units) + fixed costs
  22. assumptions of cost volume profit analysis
    linear revenue function and linear cost function

    price, total fixed costs, and unit variable costs can be accurately identified and remain constant over the relevant range

    what is produced is sold

    sales mix is known for multiple product analysis

    selling prices and costs are assumed to be known with certainty
  23. margin of safety
    units sold or expected to be sold or revenue earned or expected to be earned above break even volume
  24. operating leverage
    use of fixed costs to extract higher peercentage changes in profits as sales activity changes
  25. degree of operating leverage
    total contribution margin / profit

    higher = more risk
Card Set:
2012-04-26 04:38:55
MBA 710

MBA 710
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