ch 3 cost-volume-profit analysis

Question 1

LO

Answer 1

1 identify the essential elements of CVP analysis, and calculate the breakeven point (BEP)
2 apply the CVP model to calculate a target operating profit before interest and tax
3 distinguish among contribution, gross, operating, and net income margins, and apply the CVP model to calculate target net income
4 apply the CVP model in decision making, and explain how sensitivity analysis can help managers both identify and manage risk
5 analyze the implications of uncertainty on decision models
6 interpret the results of CVP analysis in complex strategies, multi-product, and multiple cost driver situations

Question 2

cost volume profit (CVP) analysis

Answer 2

a model to analyze the behavior of net income in response to changes in total revenue, total costs, or both

Question 3

operating income =

Answer 3

(unit sales price x quantity) - (unit variable cost x quantity) - fixed costs

Question 4

at breakeven point,

Answer 4

operating income = 0

Question 5

contribution margin =

Answer 5

sales - variable costs

Question 6

contribution margin ratio (CMR) =

Answer 6

unit contribution margin / selling price per unit

Question 7

breakeven revenue =

Answer 7

fixed costs / contribution margin %

Question 8

gross margin

Answer 8

a measure of competitiveness
how much a company can charge for its products over and above the cost of either purchasing or producing them

Question 9

gross margin =

Answer 9

revenue - COGS

Question 10

operating margin

Answer 10

same as operating income

Question 11

target net income equation

Answer 11

target net income / (1 - tax rate) = revenue - total variable costs - fixed costs

Question 12

margin of safety =

Answer 12

budgeted revenue - breakeven revenue

Question 13

operating leverage =

Answer 13

contribution margin / operating income

Question 14

capital-intensive companies

Answer 14

companies with a high percentage of fixed costs in their cost structure