Cost volume proft analysis CVP

Question 1

Define the concept of CVP

Answer 1

*Cost volume profit analysis is performed to determine the relationship between sales ,costs and net proft
*it gives managemnet an indication of the impact a change on sales volume will have on profts
*its important for short term decision making as it will assist management is making decisions about the numb er of units to be produced

Question 2

in cost behviour explain fixed cost and variable cost

Answer 2

fixed cost -is a cost that remains unchanged regardless of the activity level in a relevant range
variable cost-the cost that will change with the change in the activity level

Question 3

how do we calculate cvp analysis

Answer 3

*sales - variables-fixed costs =proft/loss OR
*sales - total costs= proft/loss

Question 4

Explain the full concept of break even point

Answer 4

*refers to that point where income is equal to the costs and where no ptoft or loss will be made
*break even point = fixed cost divided by contribution per unit
*management will want to know how much break even point would be in sales value called break even point in sales revenue
-first take the break even point in units and multiply it by the selling price per unit
-the break even point in sales revenue =fixed cost divided by contibution margin ratio

Question 5

how to calculate targeted profit

Answer 5

units to be sold = fixed cost +target profit divided by contribution per unit