Chapter 8 Reading Flashcards
cost-volume-profit (CVP) analysis?
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
which questions do managers use CVP for?
how will revenues and costs be affected if we sell 1000 more units?
CVP = ?
cost-volume-profit
revenues = ?
inflows of assets received in exchange for products/services
revenue driver = ?
a factor that affects revenues
e.g., units of output sold, selling prices, levels of marketing
general case/special case?
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
total costs = ?
variable costs + fixed costs
variable costs = ?
costs that vary with respect to units of output
operating profit = ?
total revenues - total costs
net profit = ?
operating profit + non operating revenue - non operating costs
net profit = operating profit - income taxes
usp = ?
unit selling price
uvc = ?
unit variable costs
ucm = ?
unit contribution margin
unit selling price - unit variable costs
fc = ?
fixed costs
q = ?
quantity of output units sold/manufactured
OP = ?
operating profit
TOP = ?
target operating profit
what are some of the CVP assumptions?
- 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
contribution margin = ?
unit selling price - variable costs per unit
breakeven point?
fixed expenses / contribution margin per unit
e.g., £2,000 / £100 per unit = 20 units to break even
what is the breakeven point?
the point at which profit = 0
what is target profit?
monetary amount beyond breakeven point
target sales = target profit + fixed costs / cost per unit
e.g., £1,500 + 2,000 / 100 = 35 units
contribution margin = ?
revenues - variable costs
contribution income statement?
groups line itesm by cost behaviour pattern to highlight the contribution margin
e.g., revenue - variable costs = contribution margin - fixed costs = operating profit