Chapter 8 Reading Flashcards

1
Q

cost-volume-profit (CVP) analysis?

A

examines the behaviour or total revenues, costs and operating profit as changes occur in the output level selling price, variable/fixed costs

a single revenue driver and a single cost drive are used in this analysis

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

which questions do managers use CVP for?

A

how will revenues and costs be affected if we sell 1000 more units?

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

CVP = ?

A

cost-volume-profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

revenues = ?

A

inflows of assets received in exchange for products/services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

revenue driver = ?

A

a factor that affects revenues

e.g., units of output sold, selling prices, levels of marketing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

general case/special case?

A

general case = considering multiple revenue drivers and multiple cost drivers, looking in long-run

special case = considering one specific revenue driver and cost driver, looking in short-run

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

total costs = ?

A

variable costs + fixed costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

variable costs = ?

A

costs that vary with respect to units of output

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

operating profit = ?

A

total revenues - total costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

net profit = ?

A

operating profit + non operating revenue - non operating costs

net profit = operating profit - income taxes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

usp = ?

A

unit selling price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

uvc = ?

A

unit variable costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

ucm = ?

A

unit contribution margin

unit selling price - unit variable costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

fc = ?

A

fixed costs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

q = ?

A

quantity of output units sold/manufactured

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

OP = ?

A

operating profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

TOP = ?

A

target operating profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

what are some of the CVP assumptions?

A
  • total costs can be divided into a fixed component and a variable component
  • behaviour of total revenues and total costs is linear in relation to output units
  • USP, UVC and FC are constant
  • analysis covers a single product or assumes the proportion of different products remains constant
  • all revenues and costs can be added and compared without taking into account the time value of money
  • changes in levels of revenues/costs arise because of changes in number of products/services produced and sold
  • the number of output units is the only revenue and cost driver
19
Q

contribution margin = ?

A

unit selling price - variable costs per unit

20
Q

breakeven point?

A

fixed expenses / contribution margin per unit

e.g., £2,000 / £100 per unit = 20 units to break even

21
Q

what is the breakeven point?

A

the point at which profit = 0

22
Q

what is target profit?

A

monetary amount beyond breakeven point

target sales = target profit + fixed costs / cost per unit

e.g., £1,500 + 2,000 / 100 = 35 units

23
Q

contribution margin = ?

A

revenues - variable costs

24
Q

contribution income statement?

A

groups line itesm by cost behaviour pattern to highlight the contribution margin

e.g., revenue - variable costs = contribution margin - fixed costs = operating profit

25
what are the three methods for calculating the breakeven point?
- equation method - contribution margin method - graph method
26
equation method for calculating breakeven point?
revenues - variable costs - fixed costs = operating profit
27
contribution margin method for calculating breakeven point?
algebraic manipulation of the equation method
28
graph method for calculating breakeven point?
plots total costs line and total revenues line point of intersection is breakeven point
29
target operating profit?
revenues - vc - fc = TOP
30
how to calculate breakeven point in units?
fixed expenses / contribution margin per unit
31
how to calculate breakeven point in £?
breakeven units x selling price per unit
32
how to calculate required sales to hit target profit?
fixed expenses + target profit / contribution margin per unit
33
how is a contribution income statement formatted?
revenue - variable expenses = contribution margin - fixed expenses = operating income
34
margin of safety = ?
how much room for failure does the business have before it's in trouble safety margin = budgeted sales - break even sales percentage = safety margin / budgeted sales x 100
35
PV graph?
shows the impact on operating profit of changes in output level profit-volume graph
36
how do you plot a PV graph?
x axis = units y axis = £ - draw line for fixed costs - draw line for total revenue - draw line for total costs break even point = point where total costs meets total revenue
37
target net profit calculation = ?
revenues - variable costs - fixed costs = target net profit/(1-tax rate)
38
sensitivity analysis?
what-if technique that examines how a result will change if the original predicted data are not achieved
39
operating leverage = ?
describes the effects that fixed costs have on changes in operating profit as changes occur in units sold and contribution margin
40
revenue mix / sales mix ?
relative combination of quantities of quantities of products/services that make up total revenues
41
contribution margin vs gross margin?
contribution margin = revenues - all variable costs gross margin = revenues - COGS
42
variable-cost percentage?
total variable costs / revenues
43
gross margin percentage?
gross margin / revenues