Chapter 10 - Cost Volume Profit Analysis Flashcards Preview

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Flashcards in Chapter 10 - Cost Volume Profit Analysis Deck (15)
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1
Q

How do we treat fixed costs?

A

As a period cost and are charged in full in the period incurred.

2
Q

How do we describe the marginal cost?

A

The extra cost to make and sell one more unit of product.

3
Q

Why is marginal costing superior to absorption costing for decision making in organisations?

A

Because of the careful separation of fixed and variable costs.

4
Q

How do you calculate Breakeven point in units?

A

Breakeven point in units = fixed costs / contribution per unit

5
Q

What is the Breakeven point?

A

When you have no profit but no loss either

6
Q

How do you calculate Breakeven point in revenue?

A

Breakeven point in revenue = Fixed costs / CS Ratio

7
Q

How do you calculate C/S Ratio?

A

Contribution per unit / Selling price

OR

Total contribution / Total sales revenue

8
Q

What does the CS ration represent?

A

How much contribution earned per $1 of sales

9
Q

How do you calculate margin of safety in units?

A

Margin of safety units = Budgeted sales - breakeven sales

10
Q

How do you describe margin of safety?

A

How much sales can decrease before loss occurs

11
Q

How do you calculate margin of safety %?

A

Margin of safety % = (Budgeted sales - Breakeven sales) / Budgeted Sales

12
Q

How do you calculate margin of safety in sales revenue?

A

Margin of safety in sales revenue = (Budgeted Sales - Breakeven sales) x Selling price

13
Q

How do you calculate target profit units?

A

Target profit = (Fixed costs + Target profit) / Contribution per unit

14
Q

What are the advantages of CVP analysis?

A
  • Graphical representation can be easily understood by non-financial colleagues
  • Profit/Loss at varying levels can be easily identified
  • Margin of safety allows managers to review risk
15
Q

What are the disadvantages of CVP analysis?

A
  • Assume Fixed Costs remain constant in total and variable costs are the same per unit
  • Assume sales price remains constant
  • Assume production and sales are the same
  • Ignores uncertainty estimates