Chapter 7

Question 1

cost volume profit analysis

Answer 1

CVP

Question 2

what is the breakeven point?

Answer 2

the volume of sales at which neither a profit nor a loss is made

Question 3

what can we assume when there is no profit or loss?

Answer 3

that the total fixed costs= total contribution

Question 4

breakeven point (units) = ?

Answer 4

fixed costs / contribution per unit

Question 5

breakeven point (revenue) =

Answer 5

fixed costs / contribution per unit x selling price per unit

Question 6

what is the margin of safety?

Answer 6

the amount by which the anticiplated (budgeted) sales can fall before the business makes a loss

Question 7

the margin os safety is the differecne between?

Answer 7

budgeted sales volume and break even point. it can be expressed in absolute units or relative percentage terms

Question 8

margin of safety (units) =

Answer 8

budgeted sales unit - breakeven sales units

Question 9

margin of safety (%) =

Answer 9

budget sales units - breakeven sales units / budget sales units x 100

Question 10

margin of safety (revenue) =

Answer 10

margin of saefty (units) x selling price per unit

Question 11

what is a target profit?

Answer 11

a simialr approach to breakeven point can be used to find the sales volume at which a particular profit is made

Question 12

sales volum to achieve a aprticualr profit =

Answer 12

(fixed costs+required profit) / contribution per unit

Question 13

sales value to achieve a particualr profit =

Answer 13

(fixed costs + required profit) / contribution per unit x sales price per unit

Question 14

the costs that would be affected by a decison are known as what?

Answer 14

relevant cost

Question 15

what are relevant costs and revenues

Answer 15

those costs and revenues that chnage as a direct result of a decision that is taken

Question 16

what is relavent cost

Answer 16

is a future, incremental cash flow arising as a direct result of a deicision being taken

Question 17

What is future costs and revenue?

Answer 17

Custom revenues are gonna be incurred sometime in the future due to a decision being taken

Question 18

What is incremented cost and revenues?

Answer 18

Any extra cost of revenue generated by the decision that would not arise otherwise

Question 19

What is cash flows rather than profit?

Answer 19

Actual cash being spent or received should be used for making the decision profits can be manipulated by accounting concepts like depreciation cash flows are more reliable

Question 20

What is an avoidable cost?

Answer 20

Any cost that would only occur as a result of taking the decision. If the decision did not go ahead, then the cost would not be incurred to it is avoidable.

Question 21

Cost or revenues that can be ruled out when making a decision come under the following categories

Answer 21

Sunco, committed costs, non-cash flow costs

Question 22

What is sunk costs?

Answer 22

Past historical costs that cannot be changed e.g. cost incurred due to research and development that has already been carried out but we’re not apply to The after the decision is made

Question 23

What is committed costs?

Answer 23

Cost that are unavoidable and will be incurred whether or not the project is done

Question 24

What is non-cash flow costs?

Answer 24

Depreciation and carrying amounts are accounting concepts not actual cash flow and are not relevant costs

Question 25

What do we assume with fixed costs as a whole regarding short term decision-making?

Answer 25

Fix costs are not relevant costs so we can approach decisions using the marginal costing technique

Question 26

What does cost for profit analyst look at?

Answer 26

The link between costs, level of activity and profits generated

Question 27

Contribution per unit equals

Answer 27

Selling price per unit - total variable cost per unit

Question 28

What is the breakeven point?

Answer 28

The volume of sales at which neither a profit nor loss is made

Question 29

When there is no profit or loss, what can we assume?

Answer 29

That the fixed total cost equal the total contribution

Question 30

What is the formula for no profit or loss?

Answer 30

Fixed cost / contribution

Question 31

If profit is zero then total contribution must equal what?

Answer 31

The fixed costs

Question 32

If contribution per unit is constant, we can calculate the number of unit units required to break even as follows

Answer 32

Breakeven point equals fixed cost/contribution per unit

Question 33

What is a margin of safety?

Answer 33

The amount by which the anticipated budgeted sales can fall before the business makes a loss

Question 34

Margin of safety units equals

Answer 34

Budgeted sales units – breakeven sales units

Question 35

Margin of safety percent equals

Answer 35

Budgeted sales units- breakeven sales units/budgeted sales unit x 100

Question 36

If we know the required profit we can add this to the fixed cost to find the amount of contribution we need to cover both the fixed cost to generate the required profit…

Answer 36

Total fix costs plus required profit/contribution or unit

Question 37

What is a breakeven point?

Answer 37

Where total revenues and costs are the same

Question 38

The margin of safety is the difference between what?

Answer 38

Budgeted sales volume and even sales volume

Question 39

What is the profit value ratio?

Answer 39

shows how much contribution is made for every 1 unit of sale

Question 40

Profit volume ratio equals

Answer 40

Total contribution/total revenue

Question 41

Breakeven point in sales value equals

Answer 41

Total fix costs / profit volume ratio

Question 42

Sales values giving a profit equals

Answer 42

Total fix costs plus required profit/profit volume ratio

Question 43

What is the calculation for breakeven point in unit?

Answer 43

Fixed cost/contribution or unit

Question 44

What is the sales volume to achieve a particular profit?

Answer 44

Total fix costs plus required profit/contribution or unit