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 = bugeted sales revenue - 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

Question 7

What is 2 assumptions and 2 limitations?

Answer 7

2 assumption
1. Selling price and variable cost per unit are constant
2. Production = sales no inventory changed

Limitations
1. Real life complexities like discounts and variable cost are not fully accounted for

2. Useful for short term decions making but no long term.

Question 8

FOR LECTURE 2

Answer 8

• MEMORISE HOW TO DO BUDGETED CONTRIBUTION FORMAT FOR INCOME STATMENT
• QUICKLY GO OVER MULTI PRODUCT CAP ANALYSIS
• EXAMPLE 7 PROPERLY