03 CVP-BEP

Question 1

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

Answer 1

Cost behavior

Question 2

Most common cost behaviors

Answer 2

Variable
Fixed
Mixed

Question 3

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

Answer 3

Variable Cost

Question 4

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

Answer 4

False - only in relevant range

Question 5

Total fixed cost is always constant (T/F)

Answer 5

F - only in relevant range

Question 5

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

Answer 5

inverse

Question 6

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

Answer 6

Step Fixed Cost

Question 7

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

Answer 7

CVP Analysis

Question 8

Assumptions and limitations of CVP Analysis

Answer 8

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

Question 9

Factors affecting profit

Question 10

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

Answer 10

Relevant Range Assumption

Question 11

Point where there is not profit nor loss

Answer 11

Breakeven

Question 12

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

Answer 12

Time Assumption

Question 13

How do you compute for breakeven in units?

Answer 13

Fixed Cost / CM per unit

Question 14

How do you compute for breakeven in pesos?

Answer 14

Fixed Cost / CM ratio

Question 15

Contribution margin at breakeven point is equal to ____________.

Answer 15

Fixed Cost

Question 16

Contribution margin at margin of safety is equal to ____________.

Answer 16

Profit

Question 17

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

Answer 17

Sensitivity Analysis

Question 18

Formula for cost indifference point

Answer 18

Differential Fixed Cost / Differential Variable Cost per Unit

Question 18

Differentiate sensitivity and scenario analysis.

Answer 18

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

Question 19

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

Answer 19

Indifference point

Question 20

Assumptions for mix break-even

Answer 20

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

Question 21

Amount by which sales can be reduced without incurring a loss

Answer 21

Margin of safety

Question 22

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

Answer 22

Degree of Operating Leverage

Question 23

Formula of DOL

Answer 23

for 1 year: Total Contribution Margin / Operating Profit for 2 yearPercentage in Profit / Percentage Change in Sales