GEO 509 Chapter Notes - Chapter 4: Liquid Oxygen, The Techniques, Operating Leverage
28 Feb 2018
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Document Summary
Cost volume profit is a powerful tool that helps managers understand the relationships among cost, volume and profit. Cvp focuses on how profits are affected by the following five elements: prices of products, volume or level of activity, per unit variable costs, total fixed costs, mix of products sold. Contribution income statement emphasizes the behavior of costs and is prepared for management use and is not ordinarily available to those outside the company. Contribution margin: the amount remaining from sales revenue after variable expenses have been deducted. The amount that is available to cover fixed expenses and then then to provide profits for the period. To break even, the total cm in dollars must equal the fixed costs. If each unit sold provides in cm then, the number of units needed to break even = fixed - Once the break-even point is reached, operating income will increase by the unit cm for each additional unit sold.
