Cvp

Question 1

Cvp important for

Answer 1

Planning
Setting prices
Determining the best product mix
Making maximum use of production facilities

Question 2

Cvp assumptions

Answer 2

1) costs and revenues are linear within the relevant range
2) all costs are fixed or variable
3) costs are only affected by changes in activity level
4) all units produced are sold
5) sales mix is constant if there is more than one product

Question 3

Cm per unit

Answer 3

Unit selling price - unit variable costs
… how much $ from each unit sold left to contribute towards fixed costs & profits

Question 4

Cm

Answer 4

(Selling price x units sold) - (variable costs x units sold)
… how much $ overall the company has left to contribute towards fixed costs and profits

Question 5

Cm ratio

Answer 5

Cm per unit / unit selling price
Or
Total cm / revenue
… what % of each sales dollar is left to contribute towards fixed costs & profits
eg 0.28… means 28 cents of each dollar is profits

Question 6

Cm q’s
How much profit will an increase in sales of X$ produce for the company?

Answer 6

1) Find out cm ratio
Unit cm/unit selling price
Or
Total cm/total sales
2) Times the cm ratio in decimals with proposed increase in sales

… ratio means that much of every dollar = profit

Question 7

Cm q’s
Estimated profits if all units sold

Answer 7

Total cm (total sales - (variable costs x units)) - fixed costs

??Cm ratio decimal times units sold??

Question 8

Limited resource how to decide what product gets extra machine hours

Answer 8

Machine hour X contribution margin per unit per machine hour

Question 9

Limited resource how to calculate cm/hour

Answer 9

Contribution margin/how long it takes to produce product

Question 10

Formula
Bep in sales

Answer 10

Equation
fixed costs + variable costs = bep in sales
Cm ratio
Fc/cm ratio (cm per unit/unit price)

Question 11

Formula
Bep in units

Answer 11

Fixed costs/cm per unit

Question 12

Math equation
Bep sales

Answer 12

Required sales dollars..

Find variable costs as a decimal of unit selling price (variable cost per unit / price per unit) = decimal

x= variable cost deicimal (vc / unit selling price) X + fc

Question 13

Math equation
Bep units

Answer 13

required units of sales volume
Unit selling price X = vc X + fc

Question 14

Formula
Mos

Answer 14

Mos $ = actual (expected) sales - break even sales

Question 15

Target profit formula

Answer 15

Required sales = vc + fc + target profit
can be sales units or sales dollars

Question 16

Target profit
Sales dollars
Maths

Answer 16

X = variable cost as percentage of selling price (variable cost/unit price) X + fixed costs + target profit

Question 17

Target profit
Sales units
Maths

Answer 17

Unit selling price X = variable costs X + fixed costs + target profit

Question 18

Formula
Target profit cm technique

Answer 18

required sales = (fixed costs + target profit) / cm ratio (cm unit / unit selling price)

Question 19

Bep q’s
Determine what a 8% discount on selling price would have on the bep - units

Answer 19

New selling price = .92 times old selling price

New cm per unit = new selling price - variable costs

New bep (units) = fc/cm per unit

Question 20

Bep q’s
Sales volume requirement to break even when fixed cost increases 10% and variable costs decrease 10%
Bep - units

Answer 20

New fixed cost = 1.1 times old fixed costs
New variable costs = 0.9 times old variable costs
New cm per unit = sale price - new variable costs
Bep in units = fixed costs / cm per unit

Question 21

Bep q’s
Responding to price increases from supplier
Q- what Increase in sales is needed to gain target profit X

Answer 21

Saving means minusing from fc = new fc

Vc as decimal of selling price (vc / unit selling price)

X=vc decimal X + fc + target profit

Question 22

Multiple products
Total cm - sales mix

Answer 22

(item 1 cm X q) + (item 2 cm X q)

Question 23

Multiple products
Weighted average contribution unit cm

Answer 23

Total cm - sales mix / number of units in sales mix

Question 24

Multiple products
Bep sales mix - units

Answer 24

Bep units = fc / weighted average cm

Implication, times the bep units by the percentage of each type they make to find out units of each type

Question 25

Limitations to resources
(Which product to make and how long it takes to make it)

Answer 25

Cm per machine hour
Cm per unit / machine hour required

Implication
Higher cm but takes longer to make = cm per machine hour is less
This tells us which item makes more money

Question 26

Limitations to resources - extra resource and how to send it
Which product to make

Answer 26

Cm = machine hour x cm per machine hour

Hence to max profit, company choose to make item with higher cm

Question 27

Formula
Mos ratio

Answer 27

Mos ratio = mos in $ / actual expected sales