Cost-Volume-Profit Analysis

Question 1

Cost-volume-profit (CVP) analysis

Answer 1

= Variable costing

• Examine interrelationships between cost, volume and profits
• Concerns relationship between profit and level of activity.
• Useful for business planning

Question 2

Contribution

Answer 2

Contribution = Excess of sales revenue over the variable costs

= Sales value - variable costs

Total contribution = Total fixed costs + profit

Question 3

Contribution margin

Answer 3

Contribution margin =
(Sales - Variable costs) / Sales %

Question 4

Break-even point calculation in sales units

Answer 4

BEP = Fixed costs / (Sales revenue per unit - Variable costs per unit)

Question 5

Sales revenue per unit =

Answer 5

= (Sales / No. of units sold) - (Variable costs / No. of units sold)

Question 6

Break-even point calculation in sales value £

Answer 6

BEP = Fixed costs + contribution margin

Question 7

Margin of safety

Answer 7

= Difference between expected level of sales and the break-even point.

= Expected Sales - Break-even sales

Question 8

% margin of safety

Answer 8

= (Expected sales - Break-even sales) / Expected sales