CVP Analysis

Question 1

CVP Analysis assumption

Answer 1

• Total cost behaves as a strictly linear semi-variable cost:
  a) fixed cost remains fixed
  b) total variable costs change
  proportionally with volume
• Unit selling prices do not change with volume
• Costs and income are matched
• Levels of efficiency and productivity do not change
• There is only a single product.

Question 2

2 ways to identify break-even point

Answer 2

• Total revenue = Total cost
• Contribution = Fixed cost

Question 3

The higher the margin of safety (MOS)……..

Answer 3

the lower the risk of making a loss