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| Question | Answer |
| Break-even chart | A graph that depicts the relationships among revenues, variable costs, fixed costs, and profits (or losses) |
| Break-even point (BEP) | The level of activity, in units or dollars, at which total revenues equal total costs |
| Contribution margin ratio (CM%) | The proportion of each revenue dollar remaining after variable costs have been covered; computed as contribution margin divided by selling price (per unit or in total) |
| Cost-volume-profit (CVP) analysis | A procedure that examines the relationship among costs (both fixed and variable), sales volume, and profits (either before- or after-tax) |
| Degree of operating leverage (DOL) | A factor that indicates how a percentage change in sales, from the existing or current level, will affect company profits; calculated as (contribution margin divided by net income); equal to (1 divided by margin of safety percentage) |
| Incremental analysis | A process of evaluating changes that focuses only on the factors that differ from one course of action or decision to another |
| Margin of safety (MS) | The excess of a company's budgeted or actual sales over its break-even point; can be calculated in units or dollars or as a percentage; is equal to (1 divided by degree of operating leverage) |
| Operating leverage | The proportionate relationship between a company's variable and fixed costs; reflects the cost structure |
| Profit-volume (PV) graph | A visual representation of the amount of profit or loss associated with each level of sales |
| Variable-cost ratio (VC%) | The proportion of each revenue dollar represented by variable costs; computed as variable costs divided by sales or as (1-contribution margin ratio) |
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