Learning Aim E

Question 1

Benefits of contribution per unit ?

Answer 1

Straight forward to calculate

Allows for the calculation of break even level of output

Can be used to inform decisions

Can be used to carry out what-if analysis

Question 2

Limitations of contribution per unit ?

Answer 2

Doesn’t take into account fixed costs

Assumes that prices remain constant

Doesn’t take into account unexpected changes to variables E.g. selling price and variable cost can fluctuate

Question 3

Use of break even analysis (4) ?

Answer 3

Planning
Monitoring
Control
Target setting

Question 4

Use of break even analysis for planning ?

Answer 4

Sets budgets for the amount of sales necessary and costs

Forms plan on when business will make profit

Informs pricing decisions

Question 5

Use of break even analysis for monitoring?

Answer 5

Monitor progress towards achieving break even point

Identify changes to selling price

Take action is targets look unlikely to be met

Question 6

Use of break even analysis for control ?

Answer 6

Keeps costs within budget

Motivate employees

Manage sales accounts

Question 7

Use of break even analysis for target setting ?

Answer 7

Set sales targets for individual employees, teams or products

Set expenditure budgets

Set profit budgets based on sales and targets and cost targets

Question 8

Advantages of break even ?

Answer 8

Business knows how many items they must sell to break even

Inform decisions on what prices to charge

Set targets motivating employees

Identifies fixed and variable costs

Identifies if Costs are too high

Easy way to calculate profit or loss

Question 9

Disadvantages of break even ?

Answer 9

Doesn’t take into account variations in costs or selling price

Forecast sales may not be achieved

Targets set may be too high, creating stress