Chapter 3

Examines the behavior of total revenues, total costs, and operating income as changes occur in the units sold, the selling price, the variable cost per unit, or the fixed costs of a product.

Total revenues - Total variable costs
or
Contribution margin per unit x Number of units sold
or
Contribution margin percentage x Revenues (in dollars)

Selling price - Variable cost per unit

Income statement that groups costs into variable costs and fixed costs to highlight contribution margin.

Contribution margin / Revenues
or
(Contribution margin / Quantity of units sold) / (Revenues / Quantity of units sold)
or
Contribution margin per unit / Selling price

A variable, such as volume, that causally affects revenues.

Is that quantity of output sold at which total revenues equal total costs-that is, the quantity of output sold that results in $0 of operating income.

Shows how changes in the quantity of units sold affect operating income.

Operating income + nonoperating revenues (such as interest revenue) - nonoperating costs (such as interest cost) - income taxes
or
Operating income - Income taxes

Is a "what-if" technique managers use to calculate how an outcome will change if the original predicted data are not achieved or if an underlying assumption changes.

Budgeted (or actual) revenues - Breakeven revenues
or, in units,
Budgetd (or actual) sales quantity - Breakeven quantity

The possibility that an actual amount will deviate from an expected amount.

Effects that fixed costs have on changes in operating income as changes occur in units sold and contribution margin.

Contribution margin / Operating income

The quantities (or proportion) of various products (or services) that constitute a company's total unit sales.

Gross margin / Revenues

Objective that can be quantified in a decision model.

Summary of the alternative actions, events, outcomes, and probabilities of events in a decision model.

A possible relevant occurrence in a decision model.

Weighted average of the outcomes of a decision with the probability of each outcome serving as the weight.

Predicted economic results of the various possible combinations of actions and events in a decision model.

Likelihood or chance that an event will occur.

Describes the likelihood (or the probability) that each of the mutually exclusive and collectively exhaustive set of events will occur.