BEC 2 - Topic 1

Question 1

What is Cost-Volume-Profit Analysis?

Answer 1

Used by managers to forecast profits at different levels of sales and production volume.

Question 2

What are the general assumptions?

Answer 2

All costs can be separated into either variable or fixed costs.
All costs are linear in fashion.
Cost behaviors remain constant over the range.

Question 3

What is variable costs?

Answer 3

DL + DM and variable manufacturing overhead, shipping and packaging and variable selling expenses.

Question 4

What are fixed costs?

Answer 4

Fixed O/H, fixed selling and most general and admin expenses.

Question 5

What is contribution margin ratio?

Answer 5

Contribution margin + Revenue

Question 6

What is Absorption Approach?

Answer 6

It is GAAP method. Product costs not expense until sold.

Question 7

What is difference between variable costing net income and absorption costing net income?

Answer 7

No change in inventory: Absorption = Variable net income
Increase in inventory: Absorption net income > Variable net income
Decrease in inventory: Absorption net income < Variable net income.

Question 8

How is breakeven computation?

Answer 8

Total fixed costs/Contribution margin per unit = Break - even point in units.

Question 9

What is target sales calculation?

Answer 9

Sales = Fixed Costs + Profit / Contribution margin ratio