Chapter 10 - Cost Volume Profit Analysis Flashcards Preview

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Flashcards in Chapter 10 - Cost Volume Profit Analysis Deck (15)
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1

How do we treat fixed costs?

As a period cost and are charged in full in the period incurred.

2

How do we describe the marginal cost?

The extra cost to make and sell one more unit of product.

3

Why is marginal costing superior to absorption costing for decision making in organisations?

Because of the careful separation of fixed and variable costs.

4

How do you calculate Breakeven point in units?

Breakeven point in units = fixed costs / contribution per unit

5

What is the Breakeven point?

When you have no profit but no loss either

6

How do you calculate Breakeven point in revenue?

Breakeven point in revenue = Fixed costs / CS Ratio

7

How do you calculate C/S Ratio?

Contribution per unit / Selling price

OR

Total contribution / Total sales revenue

8

What does the CS ration represent?

How much contribution earned per $1 of sales

9

How do you calculate margin of safety in units?

Margin of safety units = Budgeted sales - breakeven sales

10

How do you describe margin of safety?

How much sales can decrease before loss occurs

11

How do you calculate margin of safety %?

Margin of safety % = (Budgeted sales - Breakeven sales) / Budgeted Sales

12

How do you calculate margin of safety in sales revenue?

Margin of safety in sales revenue = (Budgeted Sales - Breakeven sales) x Selling price

13

How do you calculate target profit units?

Target profit = (Fixed costs + Target profit) / Contribution per unit

14

What are the advantages of CVP analysis?

-Graphical representation can be easily understood by non-financial colleagues
-Profit/Loss at varying levels can be easily identified
-Margin of safety allows managers to review risk

15

What are the disadvantages of CVP analysis?

-Assume Fixed Costs remain constant in total and variable costs are the same per unit
-Assume sales price remains constant
-Assume production and sales are the same
-Ignores uncertainty estimates