cvp analysis

Question 1

how to calc the following

Question 1

what Is cvp analysis

Answer 1

Cost-volume-profit (CVP) analysis is a method of evaluating the impact that varying levels of costs and volume have on a company’s operating profit.

Question 2

contribution per unit

Answer 2

unit selling price-unit variable costs

Question 3

profit

Answer 3

(sale volume x contribution per unit ) fixed costs

Question 4

breakeven point

Answer 4

total fixed costs / contribution per unit

Question 5

contribution/sales ration

Answer 5

contribution/sales. x 100

Question 6

sales revenues at breakeven point

Answer 6

fixed costs / contribution sales ratio

Question 7

margin of safety in units

Answer 7

budgeted sales units - breakeven sales units

Question 8

margin of safety as a percentage

Answer 8

((budgeted sales - breakeven sales)/ budgeted sales) x100

Question 9

sales volume to achieve his target profit

Answer 9

(fixed cost + target profit)/contribution per unit

Question 10

when do we use weighted average c/s ratio

Answer 10

when 2 or more units are made by business

Question 11

what is the formula for weighted average c/s ratio

Answer 11

total contribution/ total revenue

Question 12

what is the breakeven revenue with multiple products formula

Answer 12

fixed costs / weighted average c/s ratio

Question 13

what is the breakeven units with multiple products formula

Answer 13

fixed costs/ weighted average contribution per unit

Question 14

what are the steps to finding the breakeven revenue with multipole products

Answer 14

1. find cs ratio of both products induvidually
2. multiply by respective product mixes
3. add the answers up
4. divide fixed costs by the answer to get revenue

Question 15

what are the steps to finding the breakeven units with multiple products

Answer 15

1. find the contribution per unit of both products individually
2. multiple these by the respective product mixes
3. add the answers up
4. divide the fixed costs by the answer to get the breakeven units

Question 16

formula for establishing a target profit for multiple products

Answer 16

fixed costs + required profit/ weighted average c/s ratio

Question 17

what are the limitations of cvp analysis

Answer 17

limited as based on the assumption that either a single product is being sold or products are being sold in a constant product mix which is not always the case

assumes all variables other than volume, remain constant i.e volume is not the only factor that causes revenues and costs to change like Eos

the total cost and total revenue function is linear. this is only is short run as it may change in future

assuming total cost has one part variable and one part fixed which is not always true nowadays

assumes that everything produced is sold and doesn’t consider inventory

Question 18

what are the advantages of cvp analysis

Answer 18

graphical representation of cost and revenue data can be more easily understood by non- financial managers

a breakeven model enables profit and loss at any level of activity within the range for which the model is valid to be determined and

the c/s ratio can indicate the relative profitability of different products

highlighting the breakeven point and the margin of safety gives managers some indication of the level of risk involved