BUS 215 Lecture Notes - Lecture 4: Operating Leverage, Earnings Before Interest And Taxes, Income Statement
Document Summary
Basics of cost-volume-profit (cvp) analysis: the contribution income statement is helpful to managers in judging the impact on profits of changes in selling price, cost, or volume. The emphasis is on cost behavior: contribution margin is the amount remaining from sales revenue after variable expenses have been deducted. The contribution approach: we do not need to prepare an income statement to estimate profits at a particular sales volume. Simply multiply the number of units sold above break-even by the contribution margin per unit. Contribution margin ratio: dividing total contribution margin by total sales, cm ratio = cm per unit divided by sp per unit, profit = (cm ratio * sales) - fixed expenses. Variable expense ratio: ratio of variable expenses to sales, variable expense ratio = total variable expenses divided by total sales, or variable expenses per unit divided by unit selling price.
