Concept introduction:
Cost Volume Profit (CVP) Analysis:
The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.
Contribution margin means the margin that is left with the company after recovering variable cost out of revenue earned by selling smart phones. The formula for contribution margin is as follows:
Contribution margin = Sales - Variable cost.
Similarly contribution margin ratio = Contribution/sales
To indicate:
Why contribution margin income statement is more important for decision making than income statement intended for external users
Want to see the full answer?
Check out a sample textbook solutionChapter 5 Solutions
Managerial Accounting
- How is a contribution margin determined, and why is it important to management?arrow_forwardWhat does it mean to obtain a competitive advantage? What role does the cost management system play in helping to achieve this goal?arrow_forwardWhat is meant by a products contribution margin ratio and how is this ratio useful in planning business operations?arrow_forward
- Discuss the concept of controllable and uncontrollable costs and how they affect the evaluation of the responsibility centers financial performance.arrow_forwardWhich of the following is not a qualitative decision that should be considered in an outsourcing decision? A. employee morale B. product quality C. company reputation D. relevant costsarrow_forwardShould a managerial accounting system provide both financial and nonfinancial information? Explain.arrow_forward
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegeCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningPrinciples of Cost AccountingAccountingISBN:9781305087408Author:Edward J. Vanderbeck, Maria R. MitchellPublisher:Cengage Learning
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,