SU10: CVP Analysis

Question 1

Marginal product

Answer 1

the incremental output obtained by adding one unit of a variable input factor

Question 2

Profit Maximization

Answer 2

where marginal revenue = marginal cost

Question 3

Pure competition rules

Answer 3

large number of buyers and sellers, homogonous product.

marginal revenue = average revenue = average price

Question 4

UCM

Answer 4

Unit Sales Price - Unit Variable Costs

Question 5

Breakeven point in units

Answer 5

Fixed Costs / UCM

Question 6

CMR

Answer 6

UCM / Unit Selling Price

Question 7

Breakeven point in dollars

Answer 7

Fixed Costs / CMR

Question 8

Margin of Safety

Answer 8

Planned Sales - Breakeven Sales

Question 9

Margin of Safety Ratio

Answer 9

Margin of Safety / Planned Sales

Question 10

Target Income in Units

Answer 10

(fixed costs + target operating income) / UCM

Question 11

Target Income in Units (after tax)

Answer 11

[fixed costs + target net income / (1-tax rate)] / UCM

Question 12

Multi-product breakeven point (costs)

Answer 12

Total fixed costs / (weighted average selling price - weighted average variable cost)

Question 13

Multi-product breakeven point

Answer 13

total fixed expenses / weighted average UCM

Question 14

weighted average contribution margin ratio

Answer 14

weighted average UCM / weighted average unit selling price

Question 15

multi-product breakeven point

Answer 15

total fixed costs / weighted average CMR

Question 16

Monopolistic competition is characterized by

Answer 16

a relatively large group of sellers who produce differentiated products

Question 17

List some assumptions of CVP analysis

Answer 17

Inventory levels do not change (production equals sales)
Total variable costs chane proportionally with volume, but unit variable costs do not (it costs the same to produce unit 3 as it does to produce unit 3,000)
Fixed costs remain constant over the relevant range
Sales mix does not change
Time value of money is ignored.

Question 18

Monopolistic competition is characterized by a

Answer 18

Relatively large group of sellers who produce differentiated products

Question 19

A firm should <> production so long as <> is less than <>

Answer 19

increase production so long as marginal cost is less than selling price