Cost Volume Profit Analysis With 1 Product

Question 1

What is the regression method and how is it done?

Answer 1

Identifies the line that fits all data points the best.
Uses computer program to calculate values.

Question 2

What does the intercept with the y-axis represent for regression analysis?

Answer 2

Fixed cost

Question 3

What does the X variable represent in regression analysis?

Answer 3

Variable cost

Question 4

What does the R Square value calculated from regression analysis tell us?

Answer 4

How best fit the line is to explain the variability of the data. E.g R-square = 0.82, regression line fits 82% of all data points.

Question 5

Should an outlier be included in a regression analysis if it is a regular occurrence?

Answer 5

Yes.

Question 6

Structure of functional income statement

Answer 6

Sales/revenue/turnover
— production costs
= gross margin/profit
— non-production costs
= net income/profit

Question 7

Structure of behaviour income statement

Answer 7

Sales
— variable expenses
= Contribution margin
— fixed expenses
= Net income

Question 8

How to find contribution margin (CM)?

Answer 8

sales — variable expenses

Question 9

What is the contribution margin?

Answer 9

Funds left over after sales — variable expenses to meet fixed costs.

Question 10

What is the cost volume profit analysis formula?

Answer 10

I = PX — VX — F

Question 11

What do the following abbreviations represent?:
I = PX — VX — F

Answer 11

I = net income
P = selling price
X = units sold
V = variable cost per unit sold
F = total fixed costs

Question 12

What is the sales units formula?

Answer 12

X = (I + F) / (P — V)

Question 13

What does P — V represent?

Answer 13

Unit contribution margin

Question 14

What is the difference between the following formulas:

P — V

Sales — variable expenses

Answer 14

Selling price — variable cost = unit contribution margin.

Sales — variable expenses = contribution margin

One is for a singular unit, other is for all units.

Question 15

What is the breakeven formula?

Answer 15

X = F / (P — V)

Question 16

Solve the required breakeven in units where:

Fixed costs are $120 000, with the selling price per unit being $400 and the variable costs per unit being $100.

Answer 16

400 units.

Question 17

What is the formula for calculating income after tax.

Answer 17

after tax profit = I — It

Where:
I = before tax profit
It = tax rate x income before tax

Therefore:
After tax profit = I (1 — t)

Question 18

If profit before tax = $340 000
And the tax rate is 0.4
What is the income after tax?

Answer 18

$204 000

340 000 (1 — 0.4)
= 340 000 (0.6)
= 204 000