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CVP and Break Even Analysis (Break Even (Units (Fixed Costs / Contribution…
CVP and Break Even Analysis
Break Even
Units
Fixed Costs / Contribution per unit
Sales
Fixed costs / Contribution Margin ratio
Units needed to sell in order to cover fixed costs
Contribution Margin
Selling price - variable costs
Contribution per unit ratio
Contribution margin per unit / Selling price per unit
Costs
Fixed
Costs that dont change according to the use or output level
Variable
Costs that vary according to output level or consumption of assets
Mixed
Costs with fixed components however could be exceeded according to use
Target Profit
(Fixed costs + Target profit) / contribution margin per unit
Operating Leverage
The mix between an entity fixed and variable costs
A higer proportion of fixed costs than variable costs is classified as high operation leverage
Its more risky, therefore greater return
Know the formulas, they dont come on the exam, also RI and ROI
Contribution margin
Break Even (units)