1.




money used by a company, provided by the shareholders or
by loans
to provide money to pay for something
the study of how money is managed and the actual process
of acquiring needed funds.
the management of large amounts of money, especially by
governments or large companies

2.
A firm’s use of assets & liabilities using fixed costs in an
attempt to rise potential returns to shareholders
use of assets consuming fixed costs. The use of fixed
operating costs by the firm.
use of liabilities & preferred stock consuming fixed costs.
The use of fixed financing costs by the firm.
The British expression is gearing.

3.
 Costs of sales
 General admin, & selling expenses
 interest charges
 Preferred dividends
 Income taxes
 Costs that change in close relationship to variations in sales are
named as variable costs. changes in total in proportion to
changes in the related level of volume. on a per-unit basis
variable cost remain constant.

4.
Cost is a resource sacrificed or
forgone achieve specific objective.
 is the cost incurred (a historical
cost)
 as distinguished from budgeted
costs.
 a cost that has occurred

persist unchanged in total
irrespective of changes in the
related level of volume. with
the level of production it change
inversely .

5.
 Can
be identified
specifically with a
particular final cost
objective i.e., a particular
award, service or direct
activity
 Incurred
for common or
joint objectives and cannot
be readily identified with a
particular final cost
objective
 Cannot be easily
identifiable.

6.
Direct
Variable
Fixed
Indirect

7.
 The
percentage change in a firm’s operating
profit (EBIT) resulting formal present change
in output (sales).

8.

Calculating the DOL for a single product or a singleproduct firm.
Q (P - V)
Q (P - V) - FC

9.
=

10.
The percentage change in a firm’s earnings per share
(EPS) resulting from a 1 present change in operating
profit.

11.
.
EBIT
I
PD
t
= Earnings before interest and taxes
= Interest
= Preferred dividends
= Corporate tax rate

12.
EBIT + FC
DTL S dollars
of sales
DTL Q units
= EBIT - I - [ PD / (1 - t) ]
=
Q (P - V)
Q (P - V) - FC - I - [ PD / (1 - t) ]

13.
determine the level of sales a firm must achieve to stay
in business in the long run
 Shows the mix of fixed and variable cost and the
volume required for zero profit/loss
 Profit/loss generally measured by EBIT (operating
profit/loss)


14.
Using an algebraic calculation as a formula for earnings
before interest and taxes yields:
 EBIT = (P x Q) – FC – (VC x Q)

EBIT = Q x (P – VC) – FC
 Setting EBIT equal to $0 and solving for Q (the firm’s
breakeven point) yields:


15.
Every sale makes a ‘contribution’ per unit of the
difference between price (P) and variable cost (V)
Ct = P – V
 Can be expressed as a percentage of the price
 Known as the contribution margin (CM)
CM = (P – V) / P


16.
cost
Variable
cost
Fixed cost
Over head
Admin cost
Wages
premises
Raw material
Labour
components

17.
Break-even point =
Fixed costs
Selling price (per unit) – variable cost (per unit)

18.

EBIT-EPS Break-Even Analysis -- Analysis of the
effect of financing alternatives on earnings per share.
The break-even point is the EBIT level where EPS is
the same for two (or more) alternatives.
EPS
(EBIT
- I) (1 - t) - Pref. Div.
# of Common Shares

19.
 Leverage
results from the usage of fixed costs to expand
returns to firm’s owners. the mixture of debt and equity,
affects leverage and value of firm. to measure total
operating costs & level of sales Breakeven analysis is
necessary