Chapter 4 Flashcards
(15 cards)
Which of the following is NOT an assumption of Cost-Volume-Profit analysis?
A. Inventory levels will not change
B. Managers can classify each cost as either variable or fixed C. Revenues are linear throughout the relevant range of volume
D. Variable cost per unit varies throughout the relevant range.
D
If the sales price is $13, the variable cost is $4, the fixed cost is $9,000, and 10,000 units are produced, the break-even in units is:
A. 9,000. C. 818.
B. 1,000. D. 750.
B
If the sales price is $12, the variable cost is $3, and the fixed cost is $9,000, the contribution margin ratio is:
A. 100%. C. 75%. B. 92%. D. 83%.
C
If the sales price is $40, the variable cost is $26, and the fixed cost is $8,400, the break-even in sales dollars is:
A. $8,400. C. $24,000.
B. $15,600. D. $35,000.
C
Branson Movies sells movie tickets for $13 per movie patron. Variable costs are $8 per movie patron and fixed costs are $60,000 per month. The company’s relevant range extends to 35,000 movie patrons per month. What is Branson’s projected operating income if 28,000 movie patrons see movies during a month?
A. $80,000 B. $364,000 C. $304,000 D. $140,000
A
What is meant by CVP analysis?
CVP analysis is a technique used to examine changes in profits in response to changes in costs, sales volume, and prices.
What are the common applications of CVP analysis?
a. Finding the breakeven point, and more generally finding any sales volume to achieve a target profit level.
b. Evaluating the impact of alternative production and marketing strategies on profit.
What are the assumptions of CVP analysis?
• Managers can classify each cost as fixed, variable, or mixed.
• Revenues are linear throughout the relevant range.
• Costs are linear throughout the relevant range.
• Inventory levels at the beginning and end of the period are the same.
Traditional income statement
classifies costs, in accordance with IFRS, by function into manufacturing and non-manufacturing costs. It communicates the operating performance of the business to external users (i.e., this is the statement you learned in financial accounting).
Contribution margin income statement
classifies costs into variable and fixed costs and is used only internally for planning and decision making.
Break even ses formula
Fixed costs\ contribution margin
How to get fixed costs
divide the total cost by the total number of units sold.
Total Variable Cost =
Variable Cost Per Unit x Total Number of Units:
Mixed costs
Add fixed + variable
Contribution margin
Price per unit - variable cost per unit
