CVP

Question 1

Variable (Direct) Costing

Answer 1

Best source of info for Break Even analysis as product costs are DM, DL and Variable OH whereas fixed costs are period costs and applied periodically.

Question 2

Concept: What is the impact of shifting a product mix to lower CM product?

Answer 2

1. If sales are CONSTANT, then shifting to a lower CM product in overall mix leads to DECREASE in operating income
2. BEP increases!

Question 3

Equation: Required Sales for a Pre-Tax Operating Profit, in units

Answer 3

Total Fixed Costs + Pre-Tax Operating Profit

÷

Contribution margin per unit

Question 4

Equation: Required Sales for a Pre-Tax Operating Profit, in $

Answer 4

Total Fixed Costs + Pre-Tax Operating Profit

÷

Contribution margin ratio

where

Contribution margin ratio = (Selling Price - Variable Price)/Selling Price

Question 5

Equation: Break-even Point, single product, in units

Answer 5

Total Fixed Costs

÷

Contribution margin per unit

Question 6

Equation: Break-even Point, single product, in $

Answer 6

Total Fixed Costs

÷

Contribution margin ratio

Question 7

Equation: Break-even Point, multiple-product mix, in units

Answer 7

Total Fixed Costs

÷

Weighted Average Contribution per unit

Question 8

Equation: Pre-tax Profit Target

Answer 8

After Tax Profit target

÷

1 - Tax Rate

Question 9

Equation: Contribution Margin, when given contribution margin ratio

Answer 9

Sales x Contribution Margin Ratio

Question 10

Equation: Contribution margin, alternate version with pre-tax profit

Answer 10

Total Fixed Costs + Pre Tax Profit