Cost-Volume Profit Analysis

Question 1

What does the CPA ask?

Answer 1

• Break even point, income

Know if you’re working with before or after tax income

Usually effect on income is opposite of the effect on break-even point

Question 2

The basic Break Even Model is the same as the Target Operating Income Model where TOI = 0

What are the formulas you need to know??

Answer 2

TOI Units = (FC + TOI) / CM

BE UNITS = FC / CM

BE Dollar = FC /CM %

Question 3

What is the margin of safety?

Answer 3

The margin of safety indicates the difference between current sales and the break-even point.

FORMULA:

FIXED COST + TARGET PROFIT / CM PER UNIT