CVP Analysis Copilot

Question 1

What is CVP analysis?

Answer 1

The study of how changes in cost and volume affect a company’s profit ## Footnote Used for planning, pricing, product mix, and capacity decisions.

Question 2

What are the five key components of CVP analysis?

Answer 2

Volume, unit selling price, variable cost per unit, total fixed cost, and sales mix ## Footnote These factors interact to determine profitability.

Question 3

What is the contribution margin per unit?

Answer 3

Selling price – Variable cost per unit ## Footnote Measures profit from each unit sold before fixed costs.

Question 4

What is the contribution margin ratio?

Answer 4

Contribution margin per unit ÷ Selling price ## Footnote Expresses CM as a percentage of sales.

Question 5

What is the break-even point in units?

Answer 5

Fixed costs ÷ Contribution margin per unit ## Footnote The number of units needed to cover all fixed costs.

Question 6

What is the break-even point in pesos?

Answer 6

Fixed costs ÷ Contribution margin ratio ## Footnote The sales revenue needed to break even.

Question 7

What is the formula for required sales in pesos to achieve target profit?

Answer 7

(Fixed costs + Target profit) ÷ Contribution margin ratio ## Footnote Used to plan for a specific income goal.

Question 8

What is the formula for required sales in units to achieve target profit?

Answer 8

(Fixed costs + Target profit) ÷ Contribution margin per unit ## Footnote Determines how many units must be sold to hit a profit target.

Question 9

What is the margin of safety?

Answer 9

Actual sales – Break-even sales ## Footnote Indicates how much sales can drop before a loss occurs.

Question 10

What is the margin of safety ratio?

Answer 10

Margin of safety ÷ Actual sales ## Footnote Expresses risk buffer as a percentage of sales.

Question 11

What is the degree of operating leverage (DOL)?

Answer 11

Contribution margin ÷ Net income ## Footnote Measures sensitivity of profit to changes in sales.

Question 12

What does a high DOL imply?

Answer 12

Greater earnings volatility with changes in sales ## Footnote Profits rise faster with sales but fall faster with declines.

Question 13

What is the effect of increasing fixed costs on break-even point?

Answer 13

It increases the break-even point ## Footnote More sales are needed to cover higher fixed costs.

Question 14

What is the effect of increasing contribution margin on break-even point?

Answer 14

It decreases the break-even point ## Footnote Each unit contributes more toward covering fixed costs.

Question 15

What is sales mix?

Answer 15

The relative proportion of each product sold in a multi-product company ## Footnote Affects weighted-average contribution margin and break-even analysis.

Question 16

If variable cost per unit increases what happens to the contribution margin?

Answer 16

It decreases ## Footnote Higher variable cost reduces the amount left to cover fixed costs and profit.

Question 17

If contribution margin decreases what happens to the break-even point?

Answer 17

It increases ## Footnote More units or sales are needed to cover fixed costs.

Question 18

If fixed costs increase what happens to the break-even point?

Answer 18

It increases ## Footnote More sales are needed to cover the higher fixed cost burden.

Question 19

If sales mix shifts toward higher CM products what happens to break-even sales?

Answer 19

It decreases ## Footnote Higher-margin products reduce the volume needed to break even.

Question 20

If sales mix shifts toward lower CM products what happens to break-even sales?

Answer 20

It increases ## Footnote Lower-margin products require more sales to cover fixed costs.

Question 21

If actual sales are below break-even sales what is the margin of safety?

Answer 21

Negative ## Footnote Indicates the company is operating at a loss.

Question 22

If actual sales equal break-even sales what is the margin of safety?

Answer 22

Zero ## Footnote No profit or loss — just covering all costs.

Question 23

If actual sales exceed break-even sales what is the margin of safety?

Answer 23

Positive ## Footnote Indicates a profit buffer above the break-even point.

Question 24

If DOL is 5 and sales increase by 10% what happens to profit?

Answer 24

It increases by 50% ## Footnote DOL × % change in sales = % change in profit.

Question 25

If DOL is 4 and sales decrease by 5% what happens to profit?

Answer 25

It decreases by 20% ## Footnote High DOL magnifies both gains and losses.

Question 26

If a company has high fixed costs and low variable costs what is its operating leverage?

Answer 26

High ## Footnote More sensitive to changes in sales volume.

Question 27

If a company has low fixed costs and high variable costs what is its operating leverage?

Answer 27

Low ## Footnote Profit changes more gradually with sales.

Question 28

If a company wants to reduce break-even point what should it do?

Answer 28

Increase CM or reduce fixed costs ## Footnote Both actions lower the sales needed to break even.

Question 29

If a company wants to increase margin of safety what should it do?

Answer 29

Increase actual sales or reduce break-even sales ## Footnote Widens the buffer before losses occur.

Question 30

If a company has a high DOL what is the risk during a downturn?

Answer 30

Large profit decline ## Footnote High leverage amplifies losses when sales fall.

Question 31

What type of cost is fixed manufacturing overhead in CVP analysis?

Answer 31

Fixed cost ## Footnote It does not vary with activity and is included in break-even and DOL calculations.

Question 32

What type of cost is direct materials in CVP analysis?

Answer 32

Variable cost ## Footnote It changes directly with the level of production or sales.

Question 33

What type of cost is sales commission based on units sold?

Answer 33

Variable cost ## Footnote It increases proportionally with sales volume.

Question 34

What type of cost is factory rent?

Answer 34

Fixed cost ## Footnote It remains constant regardless of production volume within the relevant range.

Question 35

What type of cost is depreciation using straight-line method?

Answer 35

Fixed cost ## Footnote It does not change with activity level.

Question 36

True or False: CVP assumes all units produced are sold.

Answer 36

True ## Footnote This simplifies the analysis by avoiding inventory effects.

Question 37

True or False: CVP assumes linear cost and revenue behavior.

Answer 37

True ## Footnote It assumes constant unit variable cost and selling price.

Question 38

True or False: CVP analysis is valid even if sales mix changes.

Answer 38

False ## Footnote CVP assumes a constant sales mix in multi-product settings.

Question 39

True or False: Contribution margin equals sales minus fixed costs.

Answer 39

False ## Footnote It equals sales minus variable costs.

Question 40

True or False: Margin of safety is zero at break-even.

Answer 40

True ## Footnote There is no buffer between actual and break-even sales.

Question 41

If a company has a DOL of 3 and sales increase by 20% what happens to profit?

Answer 41

It increases by 60% ## Footnote DOL × % change in sales = % change in profit.

Question 42

If a company has a DOL of 4 and sales decrease by 10% what happens to profit?

Answer 42

It decreases by 40% ## Footnote High leverage magnifies losses when sales fall.

Question 43

If a company wants to lower its break-even point what should it do?

Answer 43

Increase CM or reduce fixed costs ## Footnote Both actions reduce the sales needed to break even.

Question 44

If a company has a high DOL what is the risk during a downturn?

Answer 44

Large profit decline ## Footnote High fixed costs amplify losses when sales fall.

Question 45

If a company has a high margin of safety what does it imply?

Answer 45

Low risk of loss ## Footnote Sales can decline significantly before reaching break-even.