Questions and Answers
What is a CVP statement?
Study of the changes of cost and volume on a company's profit for internal use, classifies costs as variable and fixed, and computes contribution margin.
What does cost includes?
All manufacturing costs and selling/administrative expenses related to product.
What does the Margin of Safety tell us?
How far sales can drop before the company is operating at a loss.
Is a lower break even point better?
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What is a Sales Mix?
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What does the Weighted Average Unit Contribution Margin compute?
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What is the formula for the Weighted Average Unit Contribution Margin?
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What is the formula for the Break Even Point in Units for multiple Sales Mix?
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What is the formula for the Weighted Average Contribution Margin Ratio?
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What is the formula for the Break Even Point in Dollars for multiple Sales Mix?
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What is the formula for Contribution Margin per unit of limited resource?
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What does Cost Structure refer to?
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What is Operating Leverage?
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What is the formula for Degree of Operating Leverage?
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What is Variable Costing?
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What is Absorption Costing?
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Study Notes
CVP Statement
- Analyzes how cost and volume changes impact a company's profit.
- Used internally to inform management decisions.
- Categorizes costs into variable and fixed, calculating the contribution margin.
Cost Includes
- Encompasses all manufacturing costs.
- Includes selling and administrative expenses linked to the product.
Margin of Safety
- Indicates the extent to which sales can decline before the company incurs a loss.
Break Even Point
- A lower break-even point is preferable as it requires fewer sales to begin making a profit.
Sales Mix
- Represents the relative percentage a company sells of its various products.
Weighted Average Unit Contribution Margin
- Utilizes sales mix to calculate break-even sales across multiple products.
Weighted Average Unit Contribution Margin Formula
- Calculated by multiplying unit contribution margin with sales mix percentage for each product and summing the results.
Break Even Point in Units for Multiple Sales Mix Formula
- Fixed Cost divided by Weighted Average Unit Contribution Margin determines units needed to break even.
Weighted Average Contribution Margin Ratio Formula
- Aggregates the contribution margin ratio multiplied by each product's sales mix percentage.
Break Even Point in Dollars for Multiple Sales Mix Formula
- Calculated as Fixed Cost divided by the Weighted Average Unit Contribution Margin Ratio to get total revenue needed to break even.
Contribution Margin per Unit of Limited Resource Formula
- Computed by dividing the Unit Contribution Margin by the number of units of the limited resource required.
Cost Structure
- Refers to the balance between fixed and variable costs incurred by a company.
- Has a significant impact on overall profitability.
Operating Leverage
- Measures how sensitive a company's net income is to sales changes.
- Indicates a company's earnings volatility.
Degree of Operating Leverage Formula
- Calculated as Contribution Margin divided by Net Income to assess the leverage effect.
Variable Costing
- Considers only direct labor, direct materials, and manufacturing overhead as product costs.
Absorption Costing
- Includes fixed manufacturing overhead in product costs.
- Complies with GAAP for external financial reporting.
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Description
Test your knowledge on Chapter 6 of ACC 202 with these flashcards. This section covers important concepts such as CVP statements, cost classification, and margin of safety. Perfect for internal studies and reinforcing your understanding of financial impacts on profit.