Models for decision making

Question 1

What is the Single Product Breakeven Analysis?

Answer 1

Also known as Cost Volume Profit (CVP) analysis concerns the relationship between sales volume, cost and profit.

Question 2

What are the 3 assumptions made in the CVP Analysis?

Answer 2

1. Selling price is constant
2. Variable cost is constant’
3. Total fixed costs.

Question 3

What are the 5 Limitations of a Breakeven Analysis?

Answer 3

Assumes:
1. All costs can be split into fixed and variable elements
2. Fixed costs are constant
3. Variable cost per unity is constant
4. Selling price is constant
5. Inventory levels are constant. (Sales = production volume)

Question 4

What characteristics do Decision-making models need to be successful?

Answer 4

1. Transparency
2. Consistency
3. Flexibility
4. Robustness

Question 4

What is a Profit Volume Chart?

Answer 4

A Profit Volume Chart is an alternative to the breakeven chart as it illustrates the relationship between profits and sales. It emphasises the impact of changes in volume and profit.

Question 5

What is a Multi-product breakeven point?

Answer 5

Breakeven analysis can be expanded for a ‘single’ mix of products using a weighted average contribution figure. A constant product sales mix must be assumed.

Question 6

Under what 3 headings can Visualisation (graphs) be considered?

Answer 6

1. Intent - Who is my audience? What message am I trying to communicate
2. Perception - The effective use of format, colour and size to improve perception
3. Simplicity - Making the message clear and uncluttered.

Question 7

Name 3 advantages of using graphs

Answer 7

1. Quick and direct
2. Highlight most important facts
3. Easy to understand and remember

Question 8

What are 2 disadvantages of using graphs?

Answer 8

1. Don’t always show something, especially if there is not enough data to produce a meaningful graph
2. Don’t offer a solution