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