CVP Analysis

Question 1

What is CVP analysis important for?

Answer 1

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

Question 2

What are the 5 basic assumptions underlying CVP application?

Answer 2

1. Costs and revenues are linear within the relevant range.
2. All costs are identifiable as variable or fixed.
3. Costs are affected only 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

Contribution margin (CM) =

Answer 3

revenue – variable costs

Question 4

Contribution margin ratio =

Answer 4

contribution margin per unit ÷ unit selling price

Question 5

CM per unit based on the limited resource =

Answer 5

contribution Margin per unit ÷ amount of resource needed for each unit

Question 6

BEP in sales =

Answer 6

variable costs + fixed costs

Question 7

BEP in units (u)

Answer 7

selling price(u) = variable cost(u) + fixed costs

Question 8

BEP in units (CM) =

Answer 8

fixed costs ÷ contribution margin per unit

Question 9

BEP in dollar (D) =

Answer 9

variable costs(D) + fixed costs

Question 10

BEP in dollar (d) (CM) =

Answer 10

fixed costs ÷ contribution margin ratio

Question 11

MoS in dollars =

Answer 11

expected sales - breakeven sales

Question 12

MoS in units =

Answer 12

(expected - breakeven sales) ÷ unit selling price

Question 13

MoS ratio

Answer 13

= MoS in dollars ÷ expected sales

Question 14

Required sales =

Answer 14

variable costs + fixed costs + target profit

Question 15

Target profit (CM) =

Answer 15

(fixed costs + target profit) ÷ contribution margin ratio

Question 16

Target profit in units (X)

Answer 16

selling price(X) = variable cost(X) + fixed costs + target profit

Question 17

CM for sales mix

Answer 17

= (contribution margin x amount) + (contribution margin x amount)

Question 18

Weighted average unit CM =

Answer 18

Total contribution margin ÷ number of units in the sales mix

Question 19

BEP in units for sales mix =

Answer 19

Fixed costs / weight average contribution margin

Question 20

What does the margin of safety indicate?

Answer 20

The amount by which sales can drop before a loss is incurred.