Short-term Decision Making

Question 1

Cost-Volume-Profit (CVP) Analysis…

Answer 1

Is the study of the effects on future profit of changes in fixed costs, variable cost, sales price, quantity & mix.

Question 2

BEP (units) =

Answer 2

(Fixed Costs) / (Constitution per Unit).

Question 3

BEP ($ of Sales Revenue) =

Answer 3

(Fixed Costs) / (C/S Ratio).

Question 4

Margin of Safety (units) =

Answer 4

Projected Sales - BEP (units)

Question 5

Margin of Safety (%) =

Answer 5

(Projected Sales - BEP (units)) / Projected Sales.

Question 6

Contribution / Sales Ratio =

Answer 6

Contribution / Sales.

Question 7

A conventional Breakeven Chart…

Answer 7

Plots sales revenue, total costs and fixed costs.

The BEP is where sales revenue = total cost.

Question 8

A Contribution Breakeven Chart…

Answer 8

Plots sales revenue, total costs and variable costs.

The BEP is where sales revenue = total cost.

Question 9

On a Profit-Volume (PV) Chart…

Answer 9

The fixed costs is the point where the line intersects the y-axis.
The BEP is the point where the line intersects the x-axis.

Question 10

A Limiting Factor…

Answer 10

Is a factor in scarce supply and limits the activities of the organisations.

Question 11

Steps to assess Make or Buy Decisions…

Answer 11

1. Identify Variable costs (A).
2. Identify cost of external purchase (B).
3. Cost of purchase = A - B.
4. Calculate cost of purchase per limiting factor.
5. Purchase lowest cose per limiting factor.