Cost behaviour and cost-volume-profit analysis

Question 1

Define Variable Costs

Answer 1

Costs that change in direct proportion to changes in activity (e.g. output, volume and time)

Question 2

Define fixed costs

Answer 2

Costs that remain unchanged over a fixed period of time regardless of changes in activity

Question 3

How is the high low method used to calculate variable cost per unit

Answer 3

The high low method uses the rise-over-run (gradient) formula for the slope of a straight line to estimate the fixed and variable costs of a mixed cost.

Question 4

How is the high low method used to calculate fixed costs

Answer 4

y = a + bx (y = total cost, a = fixed cost, b = average cost per unit, x = activity level)

Question 5

What is Cost-Volume-Profit analysis

Answer 5

CVP analysis is a study of affects of changes in fixed cost, variable cost, sales price/quantity mix on future profit. (breakeven analysis)

Question 6

Equation for Breakeven point

Answer 6

Contribution per unit

Question 7

Equation for Sales units required for desired profit

Answer 7

 Contribution per Unit

Question 8

What is the equation for contribution margin

Answer 8

Selling price per unit