Cost-Volume-Profit Analysis
Self-Test Questions
1. The difference between the sales price and the total variable costs is the contribution margin. (D) 2. The breakeven volume in units (perfume sticks) for 2005 is
TR-VC-FC=PBTMR=900000/1800 = 500
TR-VC-FC=0VC/Q = 495000/1800 = 275
Q*MR - Q(VC/Q) = FC
Q = _____FC_____
MR-VC/Q
Q = 247500/(500 275)
Q=1100Therefore (B)
3. If sales volume is expected to be 2100 units with prices/costs same, after-tax net income is expected to be
TR-VC-FC=PBT
Q*MR-Q(VC/Q)-FC=PBT
2100(500) 2100(275) 247500 = PBT = 225000
After income taxes of 32%:
225000 (225000)(.32) = 153000Therefore (A)
4. Sell 1500 at 450, reject some business from regular customers.
TR-VC-FC=PBT
Q*MR-Q(VC/Q)-FC=PBT
1500(450)+1500(500) 3000(275) 247500 = 352500
After income taxes
352500 352500(.32) = 239700Therefore (C)
5. Prices decline by 10%, variable costs increase $40/unit, no change in FC. Q needed to earn after-tax net income of 107100.
After tax income of 107100 requires PBT = X, where
X (0.32)X = 107100VC/Q = 315
X = 157500MR = 450
TR-VC-FC=157500
Q(450) Q(315) 247500 = 157500
Q(135) = 405000
Q = 3000
Sales volume required is 3000(450)=1,350,000Therefore (D) 6. Degree of operating leverage = contribution margin ÷ profit before tax
OLo = 650000÷440000 = 1.48 Therefore (C)
7. CM%=CM/TRExpected Level of production/sales 10000
VC/Q = 5+10+3.5=18.5TR = Q*MR
(MR-18.5)/(MR) = .30
0.3MR = MR 18.5
18.5 = 0.7MRMR = 26.43Therefore (B)

8. MR=28, what must Q be to generate income of 10000.
Q*MR Q*(VC/Q) FC = 10000
CM = 9.5
Q*CM = Total Fixed Costs + Desired Income
Q*CM = (0.65*10*10000) + 10000
9.5*Q = 75000
Q = 7895Therefore (C)
9. Variable costing is direct costing that treats includes only variable production costs (DM, DL, VOH) as product of inventoriable costs and FOH is a period cost. 300K + 100K + 50K = 450000 Therefore (B)

...Cost, Volume, and ProfitCost-Volume-Profit (CVP) analysis is a managerial accounting tool that expresses the simplified relationship between cost, volume, and profit (or loss). CVP analysis is based on several factors and assumptions and uses a formula to express the relationship by equation or graphically and can be used with great effect by managers who understand...

...How to Do CostVolumeProfit Analysis?
1. Do Price forecasting
Costvolumeprofit analysis is a branch of cost accounting which is often used in managerial accounting. During price forecasting, emphasis is laid on a number of points like the level of sales essential in order to cover all expenses, the exact number of valves which need to be sold so as to earn a planned profit,...

...Many entrepreneurs make the mistake of bringing a product or service to the market without fully understanding the total costs involved and the prices they can charge. As a result, they discover they can't sell enough of the product or service to make a profit. One of the most important tools you can use to make better business decisions is the break-even analysis; it enables you to determine with great accuracy whether or not your idea is a profitable one. Best of...

...address how much money sales a company needs in order to make a profit. They care if the sales mix is accurate because if the sales mix is different, it because a completely different calculation.
B. The first financial model was not useful because it did not separate fixed and variable cost. That means a CVP analysis cannot be done. It separated costs into manufacturing and cost of goods sold which is not as useful as knowing which...

...COST-VOLUMEPROFIT (CVP) ANALYSIS
This is a technique used for planning short-term run profits by finding the relationship between profits and factors that influence profits. The following factors are taken to be influencing profits:-
• Selling price
• Variable cost of production
• Fixed costs
• Activity level (production and sales units)...

...Cost, Volume, and Profit Formulas
Heather Jauregui
University of Phoenix of Axia College
“The Cost-volume-profit (CVP) analysis is the study of the effects of changes in costs and volume on a company’s profits.” (Kimmel, P., Weygandt, J., & Kieso, D. 2003) The analysis is used to maximize efficiency in a business. In order to be effective the CVP analysis...

...COST-VOLUME-PROFIT ANALYSIS(CVP)
Definition of Cost Accounting
A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step of production as well as fixed costs such as depreciation of capital equipment.
Definition of Cost-VolumeProfit Analysis
A method of cost...

...COST – volume –profit analysis
LEARNING OBJECTIVES
Students should be able to:
1. Explain the nature of CVP Analysis and name and illustrate planning and
Decision-making situations in which it may be used,
2. Separate semi-variable (mixed) costs into their fixed and variable components.
3. Construct profit/volume charts given selling price, costs and...