Chapter 11 - Breakeven analysis Flashcards
What is cost-profit-volume analysis (CVP)?
Study of effects on future profit of changes in FC, VC, sales, price, quantity and mix
What does CVP assess?
- C/S ratio
- Breakeven point
- Margin of safety
How is contribution calculated?
Sales value - all VC
What is the formula for the C/S ration?
Contribution per unit/Selling price per unit
or
Total contribution/Total sales revenue
What is the C/S ratio also referred to as?
P/V ratio
What happens at the breakeven point?
Total sales rev = TC
Or
Total contribution = FC
How is the breakeven point calculated in terms of units sold?
FC/Contribution per unit
How is the breakeven point calculated in terms of sales revenue?
FC/ C/s ratio
How is the breakeven point calculated in terms of revenue?
Breakeven point in units x selling price per unit
How is the breakeven formula used to calculate the level of activity required to earn a profit?
FC + required profit/Contribution per unit
How is the breakeven formula used to calculate the sales revenue required to earn a profit?
FC + required profit/ C/S ratio
How is the margin of safety calculated in units?
Budgeted sales units - breakeven sales units
How is the margin of safety calculated in % terms?
(Budgeted sales units - breakeven sales units)/budgeted sales units
x 100 for %
What is the formula for the weighted average C/S ration?
Total contribution/Total revenue
what is used instead of C/S ratio when calculating breakeven point in a multi-product organisation?
Weighted C/S ratio
