cost volume profit anaylsis

Question 1

Purpose of CVP analysis

Answer 1

1. provides management with cost and profit data for profit planning, formulating policies and decision making
2. provides data in determining the optimal level and mix of output to be produced with available resources.

Question 2

management’s study of the relationship among the cost, profit and volume.

this study used in planning, controlling and evaluating the objectives of enterprise

Answer 2

cost-volume profit analysis

Question 3

indicates the point in which at which the company neither makes a profit nor suffer or the point where sales less variable cost and fixed cost result in zero profit.

Answer 3

Break-even point analysis

Question 4

cost that tend to remain uniform per unit but which vary in total in direction proportion to the changes in level of activity or sales.

Answer 4

variable cost

Question 5

excess of sales over variable cost;
sales revenue minus variable cost

Answer 5

contribution Margin

Question 6

cost that tends to remain constant in total within a given period of time and a wide range of activity.

Answer 6

fixed cost

Question 7

selling price per unit minus variable cost per unit

Answer 7

contribution Margin per unit

Question 8

contribution margin divided by sales revenue

Answer 8

contribution Margin ratio

Question 9

the excess of actual or budget over break even sales

actual or budget- break even sales

Answer 9

margin of safety

Question 10

margin of safety divided by actual or budget sales or
profit margin ratio divided by contribution margin ratio

Answer 10

margin of safety ratio

Question 11

limit which the volume of activity can vary and cost and profit relationship remain valid

Answer 11

relevant range

Question 12

the relative combination of products that compose a Company’s total sales

Answer 12

sales mix

Question 13

measures how percentage change in sales will affect profit

Answer 13

degree of operating leverage

Question 14

it equal to contribution margin divided by profit before tax

Answer 14

degree of operating leverage

Question 15

underlying assumption in breakeven analysis at least 5 ( 9 in notes)

Answer 15

1. costs are classified as variable or fixed.
2. variable costs are change at linear rate.
3. fixed cost remain unchanged over relevant range.
4. productive efficiency does not change.
5. volume is the only relevant factor affecting costs.