03 CVP-BEP Flashcards

1
Q

Refers to how a cost will react to changes in the level of activity

A

Cost behavior

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2
Q

Most common cost behaviors

A

Variable
Fixed
Mixed

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3
Q

Cost that varies in total in direct proportion to the changes in the level of activity

A

Variable Cost

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4
Q

Variable cost per unit is always constant (T/F)

A

False - only in relevant range

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5
Q

Total fixed cost is always constant (T/F)

A

F - only in relevant range

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5
Q

Fixed cost per unit has a/an __________ relationship with number of units produced.

A

inverse

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6
Q

Fixed cost that is constant at a given level or period but significantly increases beyond that level or period

A

Step Fixed Cost

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7
Q

Method of cost accounting that looks at the impact that varying levels of costs and volume have on operating profit

A

CVP Analysis

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8
Q

Assumptions and limitations of CVP Analysis

A
  1. all costs are classifiable as either fixed or variable
  2. fixed costs remain constant within relevant range
  3. behavior of total revenues and total costs will be linear over the relevant range
  4. in case of multiple product companies, the selling prices, costs and sales mix sold will not change
  5. there is no significant change in the inventory level during the period under review
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9
Q

Factors affecting profit

A
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10
Q

Refers to band of activity within which cost behavior patterns are linear/valid

A

Relevant Range Assumption

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11
Q

Point where there is not profit nor loss

A

Breakeven

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12
Q

Cost behavior patterns are true only over a specified period of time

A

Time Assumption

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13
Q

How do you compute for breakeven in units?

A

Fixed Cost / CM per unit

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14
Q

How do you compute for breakeven in pesos?

A

Fixed Cost / CM ratio

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15
Q

Contribution margin at breakeven point is equal to ____________.

A

Fixed Cost

16
Q

Contribution margin at margin of safety is equal to ____________.

A

Profit

17
Q

Financial model that determines how output variables are affected by changes in input variables.

A

Sensitivity Analysis

18
Q

Formula for cost indifference point

A

Differential Fixed Cost / Differential Variable Cost per Unit

18
Q

Differentiate sensitivity and scenario analysis.

A

Sensitivity - one input is changed
Scenario - multiple inputs are changed

19
Q

Level of volume at which total revenues, total costs and hence profits are the same under both cost structures

A

Indifference point

20
Q

Assumptions for mix break-even

A
  1. Proportion of sales mix must be determined
  2. Sales mix is constant within relevant time period
21
Q

Amount by which sales can be reduced without incurring a loss

A

Margin of safety

22
Q

Measures how sensitive net operating income is to a given percentage change in sales

A

Degree of Operating Leverage

23
Q

Formula of DOL

A

for 1 year: Total Contribution Margin / Operating Profit

for 2 yearPercentage in Profit / Percentage Change in Sales