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TERM 1
Break-Even point
DEFINITION 1 The level of sales at which profit is zero TERM 2
Contribution Margin Ratio
DEFINITION 2 A ratio computed by dividing contribution margin by dollar sales. TERM 3
Cost-Volume Profit Graph
DEFINITION 3 A graphical representation of the relationships between an organization's revenues, costs, and profits on the one hand and its sales volume on the other hand. TERM 4
Degree of Operating
Leverage
DEFINITION 4 A measure, at a given level of sales, of how a percentage change in sales will affect profits. The degree of operating leverage is computed by dividing contribution margin by net operating income. TERM 5
Incremental Analysis
DEFINITION 5 An analytical approach that focuses only on those costs and revenues that change as a result of a decision.
TERM 6
Margin of Safety
DEFINITION 6 The excess of budgeted (or actual)dollar sales over the break-even dollar sales. TERM 7
Operating
Leverage
DEFINITION 7 A measure of how sensitive net operating income is to a given percentage change in dollar sales. TERM 8
Sales Mix
DEFINITION 8 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. TERM 9
Target Profit Analysis
DEFINITION 9 Estimating what sales volume is needed to achieve a specific target profit. TERM 10
Variable Expense Ratio
DEFINITION 10 A ratio computed by dividing variable expenses by dollar sales.
