← Management accounting to inform decision-making
Reading the notation
Every real paper reuses the same handful of terms across contribution margin, cash budget, and the recommendation — get them precise, since the "explain the meaning" parts are marked separately from the calculation.📖 Terms used in management accounting
7 termsCover the right column and check you can say what each one means.
- Contribution margin (CM)
- Selling price minus variable cost per unit — what each unit contributes toward fixed costs, and to profit once they are covered.
- Break-even
- The volume at which total contribution exactly equals fixed costs, so profit is zero.
- Margin of safety (MoS)
- How far sales can fall before a loss starts — expected sales minus break-even sales, usually expressed as a percentage.
- Target profit
- The volume needed to earn a specified profit — break-even with a non-zero profit figure added to fixed costs.
- Fixed vs variable cost
- Fixed costs stay the same in total regardless of volume; variable costs change in total with volume. Per unit it flips: fixed cost PER UNIT falls as volume rises, while variable cost per unit stays constant.
- Cash budget
- A forecast of cash receipts and payments only — built on timing, not on the accrual profit figure.
- Recommendation
- A clear decision, financial evidence, an original calculation, non-financial factors, and a justified conclusion — marked as one holistic judgement.
How this list maps to the paper's order
- CVP terms open nearly every paper.
- Cash-budget terms sit in the middle section.
- Recommendation terms apply to the final, largest-weighted part.