Revision lesson 2 - paper 2

Question 1

What is the formula for contribution per unit (CPU)

Answer 1

Selling price per unit - variable cost per unit

Question 2

What is the formula for margin of safety

Answer 2

Actual output - break even output

Question 3

What happens to CPU, breakeven, profits and MOS if price increases

Answer 3

CPU rises, so BE will be lower, leading to a higher margin of safety therefore increased profits if price remains the same

Question 4

Define budget

Answer 4

Financial plan for the future concerning revenue and costs

Question 5

Define historical budgets

Answer 5

Set using previous years budgets and adjusting based on circumstance changes

Question 6

Define zero based budgets

Answer 6

Each budget set to 0 each year, each budget holder has to justify a budget that can work for the coming year

Question 7

What is favourable variance

Answer 7

If profit/revenue is more than budgeted or costs are less

Question 8

What is adverse variance

Answer 8

If profit/revenue is less than budgeted or costs are more