Question

Match the term with the correct definition or explanation.

	Cost-Volume-Profit (CVP) analysis
	Break-even analysis
	Relevant range
	Fixed costs
	Variable costs
	Contribution margin
	Contribution margin ratio
	Margin of Safety
	Absorption costing
	Variable costing
	Budgeting
	Sales budget
	Production budget
	Direct materials budget
	Cash budget
	Fixed budget
	Flexible budget
	Standard costs
	Standard overhead costs

a.	This method excludes fixed overhead costs from total product costs.
b.	A budget that is prepared based on several different amounts of sales.
c.	The normal range of operations for a business (extremely high or low levels of production are not usually considered in this range).
d.	An analysis to determine the amount of sales needed (in units or dollars) to break even (not making a profit nor a loss).
e.	This budget shows the expected cash inflows and cash outflows during the budgeting period.
f.	This budget shows how many units we will be manufacturing in the budgeted period.
g.	An analysis that is performed to predict how changes in costs and sales levels impact a company's profit.
h.	The process of planning future business actions and expressing them as formal plans (expressed in monetary terms) to help achieve coordination.
i.	Pre-established costs for delivering a product or service under normal conditions.
j.	The amount that sales can drop before the company incurs a loss.
k.	The amount of revenue that can be contributed to cover fixed costs, after paying variable costs.
l.	This budget shows the planned sales in units and the expected amount of money to be earned from these sales.
m.	These costs do change in total as production or business activity volumes change, but do not change on a per unit-basis.
n.	The percentage of revenue that can be contributed to cover fixed costs, after paying variable costs.
o.	This budget shows the materials needed per unit, which is used to get the total amount of physical raw materials to meet the production requirements.
p.	A budget that reflects budgeted sales and costs that are based on a single predicted amount of sales or other activity measure.
q.	These costs do not change in total as production or business activity volumes change, but do change on a per unit-basis.
r.	Overhead amounts expected to occur at a certain activity level.
s.	This method includes the fixed overhead as part of total product costs.

Answer 1

S.No	Matching	Explanation
Cost-Volume-Profit (CVP) analysis	(g). An analysis that is performed to predict how changes in costs and sales levels impact a company's profit.	CVP analysis is done to know the impacts on net profit of changes in sales level and changes in costs.
Break-even analysis	(d). An analysis to determine the amount of sales needed (in units or dollars) to break even (not making a profit nor a loss).	BEP analysis is done to know about the number of units and dollar amount of sales for achieving point of no profit or no loss.
Relevant range	(c). The normal range of operations for a business (extremely high or low levels of production are not usually considered in this range).	Relevant range refers to normal range of operations of a business organization.
Fixed costs	(q). These costs do not change in total as production or business activity volumes change, but do change on a per unit-basis.	As we know that fixed costs in total remain same at all level of production but reduces per unit as production increases.
Variable costs	(m).These costs do change in total as production or business activity volumes change, but do not change on a per unit-basis.	Variable costs change in total as production increases but per unit variable cost remains same at all level.
Contribution margin	(k). The amount of revenue that can be contributed to cover fixed costs, after paying variable costs.	Contribution margin is the difference between sale and variable costs. Hence it shows amount of revenue to cover fixed costs.
Contribution margin ratio	(n). The percentage of revenue that can be contributed to cover fixed costs, after paying variable costs.	It shows relationship in percent form. It shows the percentage of revenue to cover fixed costs.
Margin of Safety	(j). The amount that sales can drop before the company incurs a loss.	Margin of safety = Sales – BEP. Thus it shows the amount that sales can drop before the company incurs a loss.
Absorption costing	(s). This method includes the fixed overhead as part of total product costs.	Absoption costing includes both variable and fixed costs for calculating total product costs.
Variable costing	(a). This method excludes fixed overhead costs from total product costs.	As the name of this method suggest. This method only includes variable cost for knowing product costs.
Budgeting	(h). The process of planning future business actions and expressing them as formal plans (expressed in monetary terms) to help achieve coordination.	Budgeting refers to the process of estimation of future business operations.
Sales budget	(L). This budget shows the planned sales in units and the expected amount of money to be earned from these sales.	Sales budget is prepared to know possible number of units to be sold and possible money to be received from sale of units.
Production budget	(f), This budget shows how many units we will be manufacturing in the budgeted period.	Production budget is prepared to know estimated volume of production to be manufactured in coming period.
Direct materials budget	(o). This budget shows the materials needed per unit, which is used to get the total amount of physical raw materials to meet the production requirements.	Direct material budget is prepared to know per unit direct materials required and total direct materials required to manufactured estimated number of units.
Cash budget	(e). This budget shows the expected cash inflows and cash outflows during the budgeting period.	Cash budget is the estimated structure of possible cash receipts and cash payments.
Fixed budget	(p). A budget that reflects budgeted sales and costs that are based on a single predicted amount of sales or other activity measure.	Fixed budget is the estimation of sales & costs but for a single level of units sold.
Flexible budget	(b). A budget that is prepared based on several different amounts of sales.	Opposite to fixed budget, flexible budget is prepared for several different amount of sales.
Standard costs	(i). Pre-established costs for delivering a product or service under normal conditions.	Standard costs refer to the pre-determined cost of producing a product or service. It is fixed in advance on the basis of past records and analysis.
Standard overhead costs	(r). Overhead amounts expected to occur at a certain activity level.	Standard overhead costs refer to the pre-determined amount of overheads for a ceratin level of activity. It is fixed in advance on the basis of past records and analysis.