COST ACCOUNTING T2

Question 1

CVP Variables

Answer 1

• Output level (Q)
• Unit selling price (USP)
• Unit variable cost (UVC)
• Fixed costs (FC)

Question 2

CVP Assumptions

Answer 2

1. Total costs can be divided into a fixed and variable component within a given level of activity → Relevant Range
2. Total revenues and total costs are linear in relation to output units within that relevant range.

Question 3

The Break-even point

Answer 3

Quantity of output where Total revenues = Total costs → Operating profit = 0

Question 4

Operating profit formula

Answer 4

Op.profit = (USP x Q) – (UVC x Q) - FC

Question 5

Break-even quantity (Q*) formula

Answer 5

FC / (USP - UVC)

Question 6

Break-even revenue formula

Answer 6

Q* x USP or FC / UCM/USP

Question 7

Contribution Margin Ratio

Answer 7

UCM / USP

Question 8

Contribution Margin Formula

Answer 8

Sales - Variable Costs

Question 9

Margin of Safety

Answer 9

Indicates by how much sales may decrease before resulting in a loss
(“how safe you are”).

Question 10

Margin of Safety formula

Answer 10

1. In absolute terms

M.S = Expected Sales - Breakeven Sales

2. In %

M.S = (Expected Sales - Breakeven Sales) / Expected Sales

Question 11

Equation Method Mixed Units

Answer 11

1. Define a sales mix ratio (e.g. 2 pens : 1 marker : 3 pencils).
2. Calculate Unit Contribution Margin of each product:

UCM = USP - UVC

3. Compute CM per mix unit

CM.mix = (2 * UCM.pen) + (1 * UCM.marker) + (3 * UCM.pencil)

4. Calculate BEP in mix units

FC / UCM per Unit

5. Times BEP Q* by USP and UVC to find revenue and contribution margin of each product

Question 12

Contribution Margin Method Mixed Units

Answer 12

1. Calculate weighted-average contribution margin (CM) per unit

= (UCM1Number of Units sold UCM2Number of Units sold…) / Total Number of units

2. Calculate BEP

FC / Weighted CM

3. Distribute BEP units to each product using the sales mix:

Product 1 Units = BEP * Product 1 Units / Total Mix