ADM 2341 Chapter Notes - Chapter 7: Contribution Margin, Fixed Cost, Earnings Before Interest And Taxes

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Cvp analysis that helps managers understand relationship between the 3 (cost, volume, profit) and how profit is effected by price, volume, variable costs, fixed, and mix of products. The basics of cost-volume-profit analysis we begin with the contribution statement since it emphasizes behaviours of costs and is helpful to judge impact on profits in selling price, cost, or volume. Contribution margin (after variable cost deducted from revenue): used to cover fixed then profit. Break-even point: level of sales at which profit is zero, where cm=total fixed expenses, once that is reached, operating income will be increased by units sold. To estimate profit at sale level above break even, multiple # above break even by unit contribution margin. If sales are zero, operating loss = fixed expense. Cvp relationships in graphic form relationships among revenues, costs, and level of activity presented in graphic form. Preparing the cvp graph (break-even chart) *units in horizontal and dollars in vertical axis.

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