CVP Analysis (1) Flashcards
What does a CVP analysis look at?
The effects of differing levels of activity on the financial results of a business by examining the relationship between sales volume and pofit
If sales exceed breakeven point?
Company makes a profit
What is the breakeven point?
The level of sales of which there is neither profit or loss
CVP analysis assumptions (one product)
CVP analysis can apply to one product only, or to more than one product if they are sold in fixed sales mix
CVP analysis assumptions (Fixed costs)
Fixed costs per period are same in total
CVP analysis assumptions (Variable costs)
Unit variable costs are a cosntant amount at all levels of output and sales
CVP analysis assumptions (Sales prices)
Sales prices per unit are constant at all levels of activity
CVP analysis assumptions (Volume)
Production volume = Sales volume
What is the margin of safety?
A measure of the amount by which sales must fall before we start making a loss
How is a loss made in single product breakeven analysis?
If sales volume is less than BEP
What can be assumed for a breakeven analysis can be expanded for a “single” mix of products using a weighted average contribution analysis?
A constant product sales mix
What can the C/S ratio be used to calculate?
The breakeven point in terms of sales revenue for single products
What is a multi-product P/V chart?
Each product is plotted individually, allowing the profitabilities to be compared
Why can changing the product mix have an impact on the breakeven point?
As products have different C/S ratios, any changes in the product range have an impact on breakeven point
