BUSI 2170U Chapter Notes - Chapter 4: Operating Leverage, Sensitivity Analysis, Contribution Margin
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Break-even point in units and in sales dollars. Cost-volume-profit (cvp) analysis estimates how changes in costs (both variable and fixed), sales volu(cid:373)e, a(cid:374)d price affect a co(cid:373)pa(cid:374)y"s profit. Cvp is a powerful tool for planning and decision making. It is one of the most versatile and widely applicable tools used by managerial accountants to help managers make better decisions. Normally, cvp analysis starts with a break-even analysis. The break-even point (bep) is the point where total revenue = total cost. Operating income = total revenue total expense. For cvp it is most useful to organize cost into fixed and variable components. Variable costs include: direct materials, direct labour, variable factory overhead, variable selling and administrative costs. Fixed costs include: fixed factory overhead, fixed selling and administrative costs. Contribution margin income statement: the income statement format that is based on the separation of costs into fixed and variable components. The excess of sales over variable cost.
