CVP Analysis

Define the term CVP Analysis.

• The long term, loss saving, management tool used to evaluate the company's money

• The short-range, profit planning, management tool expresses relationships between sales volume, operating cost, and profits.

• The long-range, profit earning, management tool which expresses relationships between sales volumes and profits.

• The medium-range profit loss management tool which a company uses to manage profit margin.

What is the purpose of CVP Analysis?

• Mainly for planning purposes

• Used for long term accounting purposes

• Used for small accounting purposes

• Mainly for time to time planning purposes

What are three assumptions of CVP analysis

• All variables remain constant except volume

• Fixed costs change with volume

• Profits are calculated using marginal costing

• Two profits are being produced

• Total revenues and total variable costs change proportionately with sales volume

What are the two limitations of CVP Analysis?

• Difficulties in calculating Break-even point

• Difficulties of cost classification

• Difficulties in estimating the cost volume relationship

• Difficulties in estimating total profit cost

What are two characteristics of Contribution Margin?

• This represents the amount of sales revenue that goes towards covering fixed costs and generating profit

• The contribution margin does not measure the change in profit

• There is non-sufficient contribution to cover total variable costs

• Once BEP has been reached a further contribution generated represents profit

Which is the formula for Contribution per unit?

• Selling price - fixed costs

• Admin price - Variable cost

• Selling price - variable cost

• Variable cost - Selling price

How to calculate the Break-even point in units?

• Total fixed costs/ Contribution per unit

• Total fixed costs/ Contribution margin ratio

• Contribution per unit/ Total fixed costs

• Sales/ Total fixed costs

Choose the formula to calculate the Break-even point (sales revenue)?

• BEP in units/ selling price unit

• Selling price unit/ BEP units

• BEP in units x selling price unit

• Selling price unit/BEP units x 100

How to calculate the Contribution margin ratio?

• Sales/ Contribution x 100

• Contribution x Sales x 100

• Total fixed costs + Contribution

• Contribution/ Sales x 100

Pick the formula for Target profit (units)

• Total variable costs + Target profit/ Contribution per unit

• Total fixed costs + Target profit/ Contribution per unit

• Target profit - Fixed costs - Variable costs / Contribution per unit

• Target profit + Contribution per unit - Fixed costs