ACTG 1P11 Lecture Notes - Lecture 20: Contribution Margin, Earnings Before Interest And Taxes, Fixed Cost

• School: Brock University
• Department: Accounting
• Course: ACTG 1P11
• Professor: Glenn Skrubbeltrang

Document Summary

Cvp analysis - the study of the effects that changes in costs and volume have on a company"s profits. Critical in setting selling prices, determining product mix, and maximizing the use of production facilities. Assumptions underlie each cvp analysis (if not valid cvp could be inaccurate): behavior of both costs and revenues is linear throughout the relevant range of the activity index. Inventory levels remain constant all units that are produced are sold: all costs can be classified as either variable or fixed, changes in activity are the only factors that affect costs. 4: when more than one type of product is sold, the sales mix will remain constant. The percentage of total sales that each product represents will stay the same (the sales mix complicates cvp analysis because different products will have different cost relationships) Classifies costs as variable or fixed and calculates contribution margin. Contribution margin amount of revenue that remain after variable costs have been.