LO 3-1

Explain how changes in activity affect contribution margin and net operating income.

LO 3-2

Prepare and interpret a cost-volume-profit (CVP) graph and a profit graph.

LO 3-3

Use the contribution margin ratio (CM ratio) to compute changes in contribution margin and net operating income resulting from changes in sales volume.

LO 3-4

Show the effects on net operating income of changes in variable costs, fixed costs, selling price, and volume.

LO 3-5

Determine the level of sales needed to achieve a desired target profit.

LO 3-6

Determine the break-even point.

LO 3-7

Compute the margin of safety and explain its significance.

LO 3-8

Compute the degree of operating leverage at a particular level of sales and explain how it can be used to predict changes in net operating income.

LO 3-9

Compute the break-even point for a multiproduct company and explain the effects of shifts in the sales mix on contribution margin and the break-even point.