ma garrison c5 cost-volume-profit relationships
CVP analysis
assumption
-----selling price is constant
-----costs are Linear and be accurately divided into variable and fixed components
------in multiproduct companies, the mix of products sold remains constant
CVP valid within the relevant range

contribution margin
contribution income statement
sales /variable expenses /contribution margin
fixed expenses/ net operating income
only uses for management

contribution margin first cover fixed expenses
break-even point is the level of sales at which profit is zero, and each additional unit sold increases the company\'s profit by the amount of the unit contribution margin after break-even point

CVP relationships in equation form
profit = (sales - variable expenses) - fixed expenses
sales = selling price per unit * quantify sold = p *q
profit = ( p -v )*q -fixed expenses
profit = contribution margin - fixed expenses
profit = unit cm *q - fixed expenses

CVP graph (sometimes a break-even chart)
profit graph, just sales curve and breakeven point
profit = unit cm*q - fixed expenses

contribution margin and the variable ratio
cm ratio = contribution margin / sales
= unit cm/selling price

variable expense ratio = variable expenses / sales

CM ratio = 1- variable expense ratio

change in contribution margin = CM ratio * change in sales
profit = CM ratio * sales - fixed expenses
change in profit = cm ratio * change in sales - changes in fixed expenses