Please enable JavaScript.
Coggle requires JavaScript to display documents.
Chapter 10 Cost Volume Profit Analysis (Margin of safety Excess of…
Chapter 10 Cost Volume Profit Analysis
... is the
investigation
into the
change
in
profits
in relation to:
changes in sales volume
cost and prices
costs
Variable costs
Costs which change in total as the level of activity changes
Behaviour
Total variable costs
increase in cost behaviour over the
relevant range
graph goes up
Variable cost per unit
No change in cost behaviour over the
relevant range
flat line graph
Fixed costs
costs which remain the same
within a given range and time frame
despite any changes in the level of activity
Behaviour
Fixed cost per unit
a decrease in cost behaviour over the
relevant range
graph drops down over time / activity
Total fixed cost
No change over the
relevant range
Flat line graph
Mixed costs
cost which has both fixed and variable cost characteristics
sometimes called '
semi-fixed costs
' or '
semi-variable costs
'
Relevant range
activity range at which the cost behaviour is said to be relevant
Break even
in units
Fixed costs $ / Contribution margin per unit $ = x break-even (units)
Contribution Margin per unit CM
CM = Selling price (Per Unit) - variable costs
Contribution margin ratio
Contribution margin per unit / selling price per unit X 100 = %
Total contribution margin / total sales X 100 = %
Margin of safety
Excess of revenue (or units of sales)
above the BE point
Margin of safety in
units
M.S in Units = Actual or estimated units of activity - Units at break-even point
Margin of safety in
revenues
M.S in revenues = Actual or estimated revenues - Revenues at B.E point
Sales mix
Number of units of each product/ service sold relative to the total units sold
weighted average Contribution margin (WACM)
Sum of the contribution margin of each product weighted by the relative
sales mix
Operating leverage
Mix between fixed and variable costs in the cost structure of the entity