MA lecture 3 + workshop 2 Flashcards
tenta (21 cards)
What is the purpose of CVP analysis?
To examine the relationship between costs, volume, and profit, helping businesses forecast profitability and make informed decisions.
What is the formula for the break-even point (BEP) in units?
𝑄be= FC/(P-VC) –> (Fixed Costs divided by Contribution Margin per unit)
What is the contribution margin (CM)?
Selling price per unit minus variable costs per unit.
What does the CM ratio represent?
The contribution margin per euro of revenue, showing how much contributes to fixed costs and profit.
What is the break-even point (BEP)?
The sales volume where total revenue equals total costs, resulting in no profit or loss.
How can the BEP formula be adjusted for profit planning?
By including the desired profit in the numerator: 𝑄be= (FC+profit)/(P-VC)
What is sensitivity analysis in CVP?
What is sensitivity analysis in CVP?
How does reducing R&D costs affect the BEP?
It lowers fixed costs, which in turn lowers the BEP.
What happens to the BEP if the selling price increases?
The contribution margin improves, which lowers the BEP.
How is net profit calculated in CVP analysis?
net profit= operating profit * (1- tax rate)
How do taxes affect the break-even point?
Taxes increase the break-even point because businesses need to generate more revenue to cover tax expenses.
How is CVP analysis adjusted for multiple products?
By using average contribution margins across products and assuming a constant sales mix.
What is the high-low method used for?
To separate fixed and variable costs based on extreme points in data.
How is the variable cost per unit calculated using the high-low method?
VC= (cost at high point-cost at low point)/(high activity level-low activity level)
What is done with outliers in the high-low method?
they may be excluded if they distort the analysis.
What is the formula for the degree of operating leverage (DOL)?
degree of operating leverage= Contribution margin/ operating income
What does a higher DOL indicate?
Greater impact of fixed costs on profits, meaning higher risk and reward.
How do production methods (e.g., shale, offshore) affect break-even prices?
Different methods have varying cost structures, leading to different break-even prices.
What are the assumptions of CVP analysis
- Sales volume is the primary cost driver.
- Costs and revenues behave linearly.
- Typically assumes single-product analysis.
How is operating income calculated in CVP?
operating income= sales quantity*(price-unit VC)-FC
What is the impact of lower prices and higher fixed costs on BEP?
it increases the break-even point.
