Chapter 8 (WEEK 3)

Question 1

Revenue

Answer 1

inflows of assets received in exchange for products provided to customers

Question 2

Revenue driver

Answer 2

factor that affects revenues (units of output sold, selling prices, levels of marketing costs)

Question 3

Cost

Answer 3

a resource sacrificed or forgone to achieve a specific objective and a cost driver is any factor that affects costs

Question 4

General case

Answer 4

A detailed and complex way to predict total revenues and total costs by using multiple revenue drivers and multiple cost drivers.

Question 5

cost-volume product (CVP) analysis

Answer 5

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

Question 6

operating profit

Answer 6

total revenues from operations minus total costs from operations

Question 7

net profit

Answer 7

operating profit plus non-operating revenues minus non-operating costs minus income taxes.

Question 8

6 assumptions CVP

Answer 8

1. total costs can be divided into fixed component and a variable component
2. total revenues and costs is linear in relation to output units within the relevant range
3. unit selling price, unit variable costs and fixed costs are known and constant
4. single product or multiple but will remain constant
5. all revenues and costs can be added and compared without considering the time value of money
6. changes in level if rev and costs arise only because of changes in number of products

Question 9

Breakevenpoint CVP

Answer 9

quantity of output where total revenues and total costs are equal, operating profit is ZERO

Question 10

You can determine breakeven point with three methods

Answer 10

equation method, contribution margin method and graph method

Question 11

Equation method

Answer 11

Revenues - variable costs - fixed costs = operating profit

Question 12

Contribution margin method

Answer 12

fc/ucm

Question 13

Contribution income statement

Answer 13

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

Question 14

PV graph

Answer 14

shows the impact on operating profit of changes in the output level

Question 15

Equation method with tax

Answer 15

rev - variable costs - fixed costs = (target net profit/1-tax rate)

Question 16

Can income tax change the breakeven point?

Answer 16

no because operating profit at the breakeven point is zero and thus no income taxes will be paid

Question 17

Do other kinds of taxes affect the breakevenpoint?

Answer 17

yes

Question 18

Sensitivity Analysis

Answer 18

what-if techique that examines how a result will change if the original predicted data are not achieved or if an underlying assumption changes

Question 19

Why do managers use this

Answer 19

broadens their perspectives as to what might actually occur despite their well laid plans

Question 20

Margin of safety

Answer 20

excess of budgeted revenues over the breakeven revenues

Question 21

whats the question when it comes to margin of safety

Answer 21

if budgeted revenues are above breakeven and drop, how far can they fall below budget before the breakeven point is reached.

Question 22

actions and events

Answer 22

actions are choices made by management and events are ocurrences that management can not control

Question 23

operating leverage

Answer 23

the effects that fixed costs have on changes in operating profit as changes occur in units sold and hence in contribution margin

Question 24

organizations with a high proportion of fixed costs in their cost structures have a high/low operating leverage

Answer 24

high operating leverage

Question 25

the degree of operating leverage equals

Answer 25

contribution margin divided by operating profit

Question 26

revenue mix (sales mix)

Answer 26

relative combination of quantities of p/s that constitutes total revenues

Question 27

what’s the best decisions

Answer 27

to recognize the contribution margin per unit of the constraining factor

Question 28

contribution margin

Answer 28

revenues - all variabele costs

Question 29

gross margin

Answer 29

revenues - cogs