CHAPTER 18 -CVP

Question 1

CVP = COST VOLUME PROFIT

Answer 1

Calculates how changes in an organisations sales volume affect its costs, revenue and profit

Question 2

CVP provides information…

Answer 2

for management decision making can determine the impact on revenue and costs quickly.

Question 3

Break Even Point

Answer 3

Sales revenue - variable cost - fixed costs = profit

(unit sales price x sales volume in units) -(unit variable cost x sales volume in units) - fixed costs = profit

Question 4

Break even point in units

Answer 4

Fixed Costs / Unit contribution margin

Question 5

Break even point in sales $

Answer 5

Fixed Costs / Unit contribution margin ratio

Question 6

Unit contribution margin

Answer 6

unit sales price - unit variable cost

Question 7

Contribution Margin ratio (percentage)

Answer 7

Unit contribution margin / Unit sales price

Question 8

Cost volume profit graph

Answer 8

Shows how the costs, revenues and profits change as sales volume changes.

Break even point is determined by the interaction of the total revenue line and total cost line.

Question 9

Profit Volume (PV) Graph

Answer 9

shows the total amount of profit or loss at different sales volumes.

intercepts the vertical axis at the amount equal to the fixed costs.

break even point is the point at which the total profit / loss line cross the horizontal axis.

Question 10

Target net profit in units

Answer 10

Fixed cost + Target net profit / unit contribution margin

Question 11

Target Net profit in sales $

Answer 11

Fixed Costs + Target net profit / contribution margin ratio

Question 12

Safety Margin

Answer 12

Difference between the budgeted sales revenue and break even sales revenue.

Question 13

Changes in fixed costs

Answer 13

Percentage changes in fixed cost will lead to a similar increase in the break even point(in units or dollars).

Question 14

Changes in Cp and Vc will affect the contribution per unit

Question 15

Multiple Changes in key variables

Answer 15

• decreasing variable cost per unit.
  -increasing selling price.
• undertaking a new advertising campaign.
  -leasing a new office

Question 16

Incremental approach to analysis

Answer 16

focuses on the differences in the total contribution margin, fixed costs and profits under the two alternatives.

Question 17

Sales volume required to earn net profit after tax:

Answer 17

Fixed costs + [target net profit after tax/(1-t)]/ unit contribution margin

Question 18

Sales Mix

Answer 18

The relative sales proportions of each type of product sold by the organisation.

Question 19

Weighted average unit contribution margin:

Answer 19

the average of the products unit contribution margins, weighted by the sales mix.

Question 20

Break even point in units - CVP Multiple products

Answer 20

Fixed Costs / Weighted average unit contribution margin