Flashcards in Cost Volume Profit Analysis Deck (19)

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1

## What is the breakeven point?

### The volume of units needed to be sold in order to equally cover the costs incurred.

2

## What is the formula for a single product breakeven point?

### Breakeven Point = Fixed Costs / Contribution per unit

3

## What is the formula for a multi-product breakeven point?

### Breakeven Point = Fixed Costs / Weighted Average Contribution per Unit

4

## What is the margin of safety?

### Expressed as a %, the Margin of Safety measures the amount that sales must fall by before a loss is made.

5

## What is the formula for the margin of safety?

### Margin of Safety (%) = (Budgeted Sales - Breakeven Sales) / Budgeted Sales

6

## What is the Contribution/Sales (C/S) Ratio?

### An alternative method for finding the breakeven point giving the amount of contribution earned per dollar of sales.

7

## By what other name is the C/S ratio known?

### The Profit Volume Ratio

8

## What is the formula for the C/S Ratio?

### C/S Ratio = Contribution per unit / Selling Price per unit

9

## What is the breakeven revenue?

### The point at which revenue is equal to costs.

10

## What are the 2 formulas for the single product breakeven revenue?

###
Breakeven Revenue = Fixed Costs / C/S Ratio

Breakeven Revenue = Breakeven Point x Selling Price per unit.

11

## What is the formula for the multi product breakeven revenue?

### Breakeven Revenue = Fixed Costs / Weighted Average C/S Ratio

12

## How is contribution calculated?

### Selling Price - Variable Costs

13

## How is output required for target profit calculated? (Also known as minimum return).

### Fixed Costs + Target Profit / Contribution per unit

14

## What is a breakeven chart?

### A graphical representation of the breakeven point.

15

## What is the profit volume chart?

### This is a variation of the breakeven chart emphasising the impact of volume changes on profit.

16

## What are the limitations of breakeven analysis?

###
- Assumes all costs can be split into fixed and variable

- Fixed costs are constant

- Variable cost per unit is constant

- Selling price is constant

- Inventory levels are constant (Sales = Production)

17

## What are the benefits of breakeven analysis?

###
Provides quick and simple estimates.

It is a form of sensitivity analysis so is useful for assessing risk around sales volume.

18

## How is a multi PV chart plotted.

### In order of ranking of highest C/S Ratio to lowest for each 'product'.

19