AFM102 Chapter Notes - Chapter 4: Deutsche Luft Hansa, Nsb Di 2, Variable Cost

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Cost-volume-profit (cvp) analysis to understand relationship among cost, volume, profit. Cvp focuses on how profits are affected by 5 elements: price of products, volume or level of activity, per unit variable costs, total fixed costs, mix of products sold. Contribution margin (cm): amount after (sales revenue - variable expenses) to cover fixed expenses and provide profits for the period. If cm is not able to cover fixed expenses, loss occurs for the period. Once break-even point is reached, income will increase by the unit of cm for each additional unit sold. What would the operating income (loss) be if: Anticipated profit/loss at any given level of sales is measured by the vertical distance between total revenue and total expenses. Break even point when total revenue = total expense. Profit = unit cm x q - fixed expense. Contribution margin ratio (contribution as a % of total sales) Shows how cm is affected by a change in total sales.

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