Question

What are the basic assumptions of CVP analysis with regard to variable cost, fixed cost, and selling price per unit? (Assume a single product).

Answer #1

cost-volume-profit analysis makes several basic assumptions, which includes,

1.The sales price, fixed costs, and variable cost per unit are constant.

2.The selling price and market conditions are also constant. If the business produces and sells multiple products, the sales mix is assumed constant.

3. The variable and fixed cost can be segregated from the cost.

4. The inventory produced during the time will be sold. Hence no opening or closing inventorys.

CVP ANALYSIS
If the variable cost % is .60 , find the contribution
margin %
Fixed costs= 400 , contribution margin % is .40. Find
sales dollars needed to break even.
Fixed costs= 500 , contribution margin per unit =10.
Find sales in units to earn a net income of 100.
Selling price per unit= 80 ; variable costs per unit=
60; fixed costs= 200.
Find the contrib. margin
%.
Actual sales=600 ; break even sales =400 ; contribution
margin=...

Mastery Problem: CVP Analysis - Constructing a
Cost-Volume-Profit Chart
CVP Analysis and the Contribution Margin Income
Statement
For planning and control purposes, managers have a powerful tool
known as cost-volume-profit (CVP) analysis. CVP analysis shows how
revenues, expenses, and profits behave as volume changes, which
helps identify problems and create solutions. In CVP analysis,
costs are classified according to behavior: variable or fixed,
rather than by category: product (which includes both variable and
fixed) or period (which includes both variable...

Mastery
Problem: CVP Analysis - Constructing a Cost-Volume-Profit
Chart
CVP Analysis
and the Contribution Margin Income Statement
For planning and
control purposes, managers have a powerful tool known as
cost-volume-profit (CVP) analysis. CVP analysis shows how revenues,
expenses, and profits behave as volume changes, which helps
identify problems and create solutions. In CVP analysis, costs are
classified according to behavior: variable or fixed, rather than by
category: product (which includes both variable and fixed) or
period (which includes both variable...

Cost-volume-profit (CVP) analysis is a planning tool that
examines the relationship among costs and how they affect profits
or losses. Cost-volume-profit analysis is also referred to as
cost-volume-price analysis because changes in sales prices also
affect profits or losses. The CVP assumptions are: The price per
unit does not change as volume changes. Managers can classify costs
as variable, fixed, or mixed. The only factor that affects total
costs is change in volume, which increases or decreases variable
and mixed...

QUESTION 5 CVP Analysis
Guide to marks: 20 marks - 8 for (a), 6 for (b), 6 for (c)
We start with a simple use of Excel in CVP analysis. Copy this
model into Excel:
A B
1 Known parameters
2 Selling price per unit 10
3 Fixed cost 1000
4 Variable cost per unit 5
5
6 Variables
7 Number of units X 1000
8
9 Results
10 Total revenue =B2*B7
11 Fixed cost =B3
12 Total variable costs...

CVP Analysis .
Multi-level Contribution Margin Calculation: 7-Eleven target
profit :
Fixed Cost per store $80,000 per year
Variable cost ratio 80%
Average Sale per customer visit $17.00
Average customer visits per week 1.5
Customers as portion of city population 5%
At what city population can a single 7-Eleven earn a profit of
$40,000?

CVP Analysis .
Multi-level Contribution Margin Calculation: 7-Eleven target
profit :
Fixed Cost per store $80,000 per year
Variable cost ratio 80%
Average Sale per customer visit $17.00
Average customer visits per week 1.5
Customers as portion of city population 5%
At what city population can a single 7-Eleven earn a profit of
$40,000?

In CVP analysis, the unit contribution margin is:
Sales price per unit less cost of goods sold per unit
Sales price per unit less FC per unit
Sales price per unit less total VC per unit
Same as the CM
Maroon Company’s CM ratio of 24%. Total FC are
$84,000. What is Maroon’s B/E point in sales dollars?
$20,160
$110,536
$240,000
$350,000
If a firm’s forecasted sales are $250,000 and its B/E sales are
$190,000, the margin of safety in dollars is:...

CVP analysis can be used to study the effect of:
changes in selling prices on a company's profitability.
changes in variable costs per unit on a company's
profitability.
changes in total fixed costs on a company's profitability.
All of the answers are correct.

Which of the following are advantages of an activity-based
costing approach to cost volume profit (CVP) analysis as compared
to a CVP analysis based on traditional product costing?
Select one:
a. Fixed costs are viewed as fixed only with respect to changes
in sales and production volume, but not as fixed with respect to
changes in other cost drivers such as number of set-ups and number
of material moves.
b. The assumption in traditional CVP analysis that sales and
production...

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