Term
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Definition
| The level of sales at which profit is zero. The break-even point can also be defined as the point where total sales equals total expenses or as the point where total contribution margin equals total fixed expenses. |
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Term
| Contribution margin method |
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Definition
| A method of computing the break-even point in which the fixed expenses are divided by the contribution margin per unit. |
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Term
| Contribution margin ratio (CM ratio) |
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Definition
| The contribution margin as a percentage of total sales. |
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Term
| Cost-volume-profit (CVP) graph |
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Definition
| The relationships between an organization's revenues, costs, and level of activity presented in graphic form. |
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Term
| Degree of operating leverage |
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Definition
| A measure, at a given level of sales, of how a percentage change in sales volume will affect profits. The degree of operating leverage is computed by dividing contribution margin by net operating income. |
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Term
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Definition
| A method of computing the break-even point that relies on the equation Sales = Variable expenses + Fixed expenses + Profits. |
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Term
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Definition
| An analytical approach that focuses only on those items of revenue, cost, and volume that will change as a result of a decision. |
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Term
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Definition
| The excess of budgeted (or actual) sales over the break-even volume of sales. |
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Term
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Definition
| A measure of how sensitive net operating income is to a given percentage change in sales. It is computed by dividing the contribution margin by net operating income. |
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Term
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Definition
| The relative proportions in which a company's products are sold. Sales mix is computed by expressing the sales of each product as a percentage of total sales. |
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