Lecture 2

Question 1

What is cost volume profit?
What does break even mean?

Answer 1

• understand how sales volume affects profits
  Break even - total revenues= total costs so there is no profit or no loss.

Question 2

How do you workout break even SALES / UNITS

Answer 2

Fixed cost/ selling price - variable costs

Question 3

How you workout contribution margin ( per unit )

How do you workout contribution margin ratio?

Answer 3

CM PER UNIT : selling price - variable costs

CM RATIO : CM PER UNIT / SELLING PRICR PER UNIT

Question 4

1. margin of safety in units
2. Margin of safety in revenue
3. Margin of safety as a %

Answer 4

In units : SALES - BREAK EVEN SALES

In revenue = sales - break even revenue

Margin of safety as % = budgeted sales - breakeven sales / budgeted sales x 100

Question 5

How do you workout break even revenue?

Answer 5

Fixed cost/ cm ratio

Question 6

How do you workout target profit analysis?

Answer 6

Fixed cost + target profit / cm per unit