4. break even analysis

Question 1

cost-volume-profit (CVP) relationships:
(3)

Answer 1

• analysis examines the relationship
  between changes in activity (output) and
  changes in total sales revenue, costs and net
  profit.
• helps predict what will happen if activity
  or volume changes.
• CVP analysis is dependent on the ability to
  estimate costs at different levels and hence
  costs must be analysed into fixed and
  variable.

Question 2

cvp analysis formula

Answer 2

Profit/loss = revenue - costs
costs=total costs= total fixed cost + total variable cost
=> revenue = profit/loss + total fixed cost + total variable costs
revenue= units sold x price
total variable cost = units sold x unit variable cost
=> (units sold x price) = price/loss + total fixed cost + (units sold x unit variable price)

Question 3

CVP MODEL
(Q x P) = N + F + (Q x V)
Q=
V=
F=
P=
N=

Answer 3

Q= units sold
V= unit variable cost
F= total fixed costs
P= price (per unit)
N= profit (operating profit)

Question 4

CVP MODEL
1. unit contribution margin
2. contribution margin ratio

Answer 4

1. P - V
2. (P - V) / P

Question 5

final CVP equation

Answer 5

Q = (N + F) / (P - V)

Question 6

marginal costing for short term decisions: types of decisions (5)

Answer 6

• Trade-offs between fixed and variable costs
• Accept or reject a special order
• Dropping a product or closing down a loss-making department
• Limiting factor analysis/theory of constraints
• Make or buy decisions/outsourcing decisions

Question 7

marginal costing for short term decisions, financial and non financial information

Answer 7

financial
- relevant costs and revenues
non financial
- quality, capacity, government policies, technology, environment, reliability, labour force, motivation etc

Question 8

capacity constrains

Answer 8

• limiting or scarce factors are factors that restrict output
• the objective is to concentrate on those products/services that yield the largest contribution per limiting factor