MGMT 122 Chapter Notes - Chapter 5: Variable Cost, Contribution Margin, Unit Price
Document Summary
Cvp analysis helps managers make important decisions. Profits are affected by the following 5 factors: Intro: (cid:2) (cid:2: selling prices, sales volume, unit variable costs, total fixed costs, mix of products sold assumptions: and fixed costs constant. A contribution income statement emphasizes the behavior of costs and helps judge the impact on profits of changes in selling price, cost, or volume. Contribution margin is the amount remaining from sales revenue after variable expenses have been deducted. It is the amount available to cover fixed expenses and then provide profits for the period. If the cm doesn"t cover fixed expenses, then a loss occurs for the period. At breakeven, cm total = fixed cost and profits = 0. Once the breakeven point has been reached, net operating income will increase by the amount of the unit cm for each additional unit sold.
