Lecture 09 - Cost-Volume-Profit Analysis & Profit Planning

Question 1

How do you calculate the Profit?

Answer 1

Profit
= Total Revenue - Total Costs

PI = R - Y

Question 2

What is the Expanded Profit formula?

Answer 2

Profit (PI) = pX - (a +bx)

• = Sales price per Unit x Number of Units sold
• - (Total fixed costs + Variable Cost x Number of Units sold)

Question 3

How do you calculate the Total Costs for a time period?

Answer 3

Y = a + bX

Total Cost

• = Total fixed Costs
• + (variable costs per unit
  x number of units sold)

Question 4

How do you calculate the Revenue?

Answer 4

R = pX

Revenue
= Sales price per Unit
x number of units sold

Question 5

What value does the profit have with the break even point and with a profit of 1`500 CHF?

• Value for Break even Point
• Value for Profit

Answer 5

• PI = 0,
  for break even point
• PI = 1`500,
  for profit of 1500 CHF

Question 6

What is the difference between contribution income statement and functional Income Statement? (4)

• Cost classification according to, ..
• Type of Margin

Answer 6

Question 7

Which of the following variable and fixed components are also classified as cost of good sold?

• Direct materials
• Direct labor
• Variable manufacturing overhead
• Variable selling and administrative cost
• Fixed manufacturing overhead
• Fixed selling and administrative costs

Answer 7

• Direct materials
• Direct labor
• Variable manufacturing overhead
• Variable selling and administrative cost
• Fixed manufacturing overhead
• Fixed selling and administrative costs

Question 8

What is the break-even point?

Answer 8

Total Revenue = Total Costs

Question 9

What happens if the company operates below and above break-even?

Answer 9

• Below: Loss
• Above: Profit

Question 10

How do you calculate the contribution margin per unit?

Answer 10

Contribution margin per unit
= Sales price per unit - variable costs per unit

Question 11

How do you calculate the contribution margin ratio?

• Definition
• two ways to calculate it

Answer 11

It represents the portion of sales revenue that is available to cover fixed costs and contribute to profit.

Contribution margin ratio

• = Contribution margin per unit / Sales price per unit
• = 1 - Percentage of sales for variable costs

Question 12

How do you calculate the
break-even volume (unit sales)?

Answer 12

Break-even volume
= Fixed costs /
Contribution margin per unit
(Sales price per unit - variable costs per unit)

Question 13

What does operating leverage? Definition

Answer 13

Measures the degree to which an organization’s costs are fixed

Question 14

How do you determine the before-tax profit?

Answer 14

Before-tax profit
= After-tax profit
/ (1 - tax rate)

Question 15

How do you calculate
DOL Degree of Operating Leverage?

Answer 15

DOL

• = Contribution Margin / Operating Income
• = Q (P – V) / Q (P – V) – F

Q = number of units.
P = price per unit.
V = variable cost per unit.
F = fixed costs.

Question 16

What does a
high degree of operating leverage signal?

Answer 16

A lot of fixed costs

Question 17

How to calculate profit of a product, service or event?

Answer 17

Question 18

How to calculate Revenue?

Answer 18

Question 19

How to calculate total cost for a time period?

Answer 19

Question 20

Cost-Volume-Profit (CVP) Analysis

• Give the main components? (4)

Answer 20

• Fixed Costs
• Variable Costs
• Volume
• Selling Price

Question 21

What is the Basic Cost-Volume-Profit (CVP) Equation?

Answer 21

Profit
= (Selling Price × Volume)
− (Variable Cost per Unit × Volume)
− Fixed Costs

Question 22

What are the assumption made for Cost-Volume-Profit (CVP)? (3)

Answer 22

Constant …

• selling price, per unit
• variable cost, per unit
• total fixed costs

Question 23

How to calculate Contribution Margin (per Unit)?

Answer 23

Contribution Margin
= Selling Price - Variable Cost per Unit

Question 24

How to calculate the
Break-Even Point
(in units)?

Answer 24

Break-Even Point (in units)
= Fixed Costs / Contribution Margin per Unit

Question 25

What is the Profit-Volume (P-V) Graph?

Answer 25

Graphical representation showing relationships between

• sales volume,
• costs,
• profits.

Question 26

What does the Sensitivity Analysis look for? (2)

Answer 26

Examining how, ..

• changes in key variables
• impact profitability

Question 27

What is a topic for Margin of Safety? (2)

Answer 27

Difference between, actual/expected sales break-even point.

Question 28

Cost-Volume-Profit (CVP) Analysis
What are the Applications? (5)

Answer 28

• P roduction
  level determination
• P ricing
  strategies
• I mpact
  assessment of cost structure changes
• F easibility
  evaluation for new products or services.
• Decision
  -making