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ACCA F5: Performance Management > Cost Volume Profit Analysis > Flashcards

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

What is the main assumption of multi product breakeven analysis?

Products must be sold in their fixed proportions.