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Principles of Accounting, Volume 2: Managerial Accounting

Key Terms

Principles of Accounting, Volume 2: Managerial AccountingKey Terms

Key Terms

break-even point
dollar amount (total sales dollars) or production level (total units produced) at which the company has recovered all variable and fixed costs; it can also be expressed as that point where Total Cost (TC) = Total Revenue (TR)
composite unit
selection of discrete products associated together in relation or proportion to their sales mix
contribution margin
amount by which a product’s selling price exceeds its total variable cost per unit
contribution margin ratio
percentage of a unit’s selling price that exceeds total unit variable costs
margin of safety
difference between current sales and break-even sales
multi-product environment
business environment in which a company sells different products, manufactures different products, or offers different types of services
multiplier effect
when the change in an input by a certain percentage has a greater effect (a higher percentage effect) on the output
operating leverage
measurement of how sensitive net operating income is to a percentage change in sales dollars
relevant range
quantitative range of units that can be produced based on the company’s current productive assets; for example, if a company has sufficient fixed assets to produce up to 10,000 units of product, the relevant range would be between 0 and 10,000 units
sales mix
relative proportions of the products that a company sells
sensitivity analysis
what will happen if sales price, units sold, variable cost per unit, or fixed costs change
target pricing
process in which a company uses market analysis and production information to determine the maximum price customers are willing to pay for a good or service in addition to the markup percentage
total contribution margin
amount by which total sales exceed total variable costs
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