basics cvp analysis Flashcards
1
Q
what is cvp?
A
the study of the effects of changes of csots and volume on a company;s profits
- it is a critical factor in managemet decisions
- it is important in profit planning
2
Q
cvp analysis considers the interrelationships among 5 components, what are they
A
- columen or level of activity
- unit selling prices
- variable cost per unit
- total fixed costs
- sales mix
3
Q
what are the 5 underlying assumptions for CVP?
A
- behaviour of both costs and revenue is linear throughout the relevant range of activity index
- all costs can be classified as either variable or fixed with reasonable accuracy
- changes in activity are the only factors that affect costs
- inventory levels remain constant - all units produced are sold
- when more than one type of product is sold, the sales mix will remain constant
4
Q
describe the cvp incoem statement
A
- a statement for internal use
- Classifies costs and expenses as fixed or variable
- reports contribution margin in the body of the statement
- reports the same incoem as a tradtional incom statemetn
5
Q
what is the formula for Contribution margin
A
unit selling prices - unit variable cost = CM
6
Q
what is the formula for the contribution margin ratio
A
Cm per unit / unit selling price
7
Q
what is the formula for breakeven
A
What is the breakeven point?
8
Q
What is CVP important for?
A
- profit planning
- Management decisions like
a) setting selling price
b) determining product mix
c) maximizing the use of production facilities
9
Q
Will net income differ when using a CVP Income statement?
A
no, it will be the same as the regular income statement
10
Q
What are the differences between a CVP income statement and a regular one?
A
- CVP income statement classifies costs as fixed or variable
- CVP I.s. shows a contribution margin
- CVP I.S usually shows a total and per unit amount to help with CVP analysis
