MGA 202 Study Guide - Quiz Guide: Earnings Before Interest And Taxes, Fixed Cost, Variable Cost

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Cost-volume-profit (cvp) analysis helps managers understand the interrelationships among cost, volume, and profit by focusing their attention on the interactions among the prices of products, volume of activity, per unit variable costs, and total fixed costs. It is a vital tool used in many business decisions such as deciding what products to manufacture or sell, what pricing policy to follow, what marketing strategy to employ, and what type of productive facilities to acquire. The contribution income statement is helpful to managers in judging the impact on profits of changes in selling price, cost, or volume. The contribution margin is defined as the amount remaining from sales revenue after variable expenses have been deducted. Contribution margin is used first to cover fixed expenses. Any remaining contribution margin contributes to net operating income. Contribution margin can also be expressed on a per unit basis sales price for one unit less variable cost for one unit.

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