BSNS 115 EXAM QUESTIONS AND ANSWERS WITH
COMPLETE SOLUTIONS VERIFIED LATEST UPDATE
What is CVP?
Cost Volume Profit Analysis
What does CVP look at?
The relationship between costs of activity and output of a business
Variable Cost
A cost that fluctuates with output
Fixed Cost
A cost that does not fluctuate with output. Paid regardless of of production
Relevant Range
The range for which cost behaviour will stay the same. If we extend outside of this, our
FC must increase.
Linearity
We assume that VC increase at a constant rate
Contribution Margin
The difference between selling price and variable costs. The CM is the amount left over
for FC and profit
Total CM Equation
Total Sales - TVC
UCM equation
,SP/unit - VC/unit
CM ratio
Shows us the percentage of sales that is the CM
CM ratio equation
CM / Sales
Income Statement Format
Sales
- VC
= CM
- FC
= Profit/loss
Breakeven
The point at which the firm makes 0 profit
BE in units
FC / CM per unit
BE in $
FC / CM ratio
BE + Profit in units
FC + TP / UCM
Be + Profit in $
FC + TP / CM Ratio
Weaknesses of BE Analysis
, Non linearity
Stepped FC (In reality FC will increase at varying levels, not together)
Numerous product business
Relevant Costs of Decision Making
Differential Costs
(difference between cost of 2 alternatives)
Opportunity Costs
(income forgone)
Irrelevant Costs
Allocated Costs
(Common costs to a variety of activities and has been split between activities)
Sunk Cost
(paid for irrelevant of decision)
Qualitative factors to consider when making decisions
Strategy of the business
Competitors
Employees
Resources
Scarce resource decision
The decision of where to allocate scarce resources to maximise profit (such as labour
hours or RM)
COMPLETE SOLUTIONS VERIFIED LATEST UPDATE
What is CVP?
Cost Volume Profit Analysis
What does CVP look at?
The relationship between costs of activity and output of a business
Variable Cost
A cost that fluctuates with output
Fixed Cost
A cost that does not fluctuate with output. Paid regardless of of production
Relevant Range
The range for which cost behaviour will stay the same. If we extend outside of this, our
FC must increase.
Linearity
We assume that VC increase at a constant rate
Contribution Margin
The difference between selling price and variable costs. The CM is the amount left over
for FC and profit
Total CM Equation
Total Sales - TVC
UCM equation
,SP/unit - VC/unit
CM ratio
Shows us the percentage of sales that is the CM
CM ratio equation
CM / Sales
Income Statement Format
Sales
- VC
= CM
- FC
= Profit/loss
Breakeven
The point at which the firm makes 0 profit
BE in units
FC / CM per unit
BE in $
FC / CM ratio
BE + Profit in units
FC + TP / UCM
Be + Profit in $
FC + TP / CM Ratio
Weaknesses of BE Analysis
, Non linearity
Stepped FC (In reality FC will increase at varying levels, not together)
Numerous product business
Relevant Costs of Decision Making
Differential Costs
(difference between cost of 2 alternatives)
Opportunity Costs
(income forgone)
Irrelevant Costs
Allocated Costs
(Common costs to a variety of activities and has been split between activities)
Sunk Cost
(paid for irrelevant of decision)
Qualitative factors to consider when making decisions
Strategy of the business
Competitors
Employees
Resources
Scarce resource decision
The decision of where to allocate scarce resources to maximise profit (such as labour
hours or RM)
