cost volume profit anyalysis

• Semi-fixed costs or semi-variable costs are in between they have both a fixed component and variable component ( utility bills electricity, telephone, water) 
• Total costs= fixed costs + variable costs
• Break even point 

  When total revenue = total costs 
• Total revenue= sales volume x sales price 

  Total costs= fixed costs + variable costs
• Denominator is known as contribution per unit- the contribution that a sale of one unit makes to covering costs, contribution margin ratio is the contribution from an activity expressed as a percentage of sales revenue 
• margin of safety- the extent to which the planned the level of output is above the break-even point
• Operating gearing- relationship between variable and fixed costs, an activity with relatively high fixed costs compared to variable is said to have high operating gearing so a relatively small change in sales will have a much bigger impact on profit. Increasing level of operating gearing makes profits more sensitive to changes in volume activity
• Weakness of break-even analysis- non-linear relationships total variable cost and total revenue lines are not perfectly straight when plotted against volume of output in real life, stepped fixed costs, multi-product business