CVP Analysis Cost
Accounting Exam 1 Ch 3
Questions Grade A+
Cost-volume-profit (CVP) analysis - ANSWERSused by managers to study the behavior of and
relationship among total revenues/costs/income as changes occur in the number of units sold,
the selling price, variable cost per unit or fixed costs of a product
Steps to make most profitable decision - ANSWERS1. identify the problem and uncertainties
2. obtain information
3. make predictions about future
- made using all information available
- realistic and use judgement
4. make decisions by choosing among alternatives
5. implement the decision, evaluate performance and learn
- compare actual performance to predicted performance
Contribution margin - ANSWERSdifference between total revenues and total variable costs
* (total revenues - total VC)
- indicates why operating income changes as number of units sold changes
Contribution margin example:
Emma sells software packages for $200. Her variable cost per unit is $120. Her total fixed costs
are 2,000. Calculate her contribution margin if she sells 5 software packages - ANSWERStotal
revenue: (200 x 5) = 1,000
, total vc: (120 x 5) = 600
----------------------------------
Contribution margin = 400
Contribution margin per unit - ANSWERSselling price - variable cost per unit
- recognizes the tight coupling of selling price and variable cost per unit
Contribution margin calculations - ANSWERS1. total revenues - total vc
2. contribution margin per unit x number of units
3. CM % x revenue ($)
Contribution margin income statement - ANSWERSincome statement that groups costs into
variable costs and fixed costs to highlight the contribution margin
Operating income - ANSWERScontribution margin - fixed costs
OR
CM % x revenues - fixed costs
Increase in contribution margin exactly equals ... - ANSWERSthe increase in operating income
Contribution margin percentage - ANSWERScontribution margin per unit / selling price
- aka contribution margin ratio
- CM per dollar of revenue
- how a change in revenues changes contribution margin
CM ratio example
Accounting Exam 1 Ch 3
Questions Grade A+
Cost-volume-profit (CVP) analysis - ANSWERSused by managers to study the behavior of and
relationship among total revenues/costs/income as changes occur in the number of units sold,
the selling price, variable cost per unit or fixed costs of a product
Steps to make most profitable decision - ANSWERS1. identify the problem and uncertainties
2. obtain information
3. make predictions about future
- made using all information available
- realistic and use judgement
4. make decisions by choosing among alternatives
5. implement the decision, evaluate performance and learn
- compare actual performance to predicted performance
Contribution margin - ANSWERSdifference between total revenues and total variable costs
* (total revenues - total VC)
- indicates why operating income changes as number of units sold changes
Contribution margin example:
Emma sells software packages for $200. Her variable cost per unit is $120. Her total fixed costs
are 2,000. Calculate her contribution margin if she sells 5 software packages - ANSWERStotal
revenue: (200 x 5) = 1,000
, total vc: (120 x 5) = 600
----------------------------------
Contribution margin = 400
Contribution margin per unit - ANSWERSselling price - variable cost per unit
- recognizes the tight coupling of selling price and variable cost per unit
Contribution margin calculations - ANSWERS1. total revenues - total vc
2. contribution margin per unit x number of units
3. CM % x revenue ($)
Contribution margin income statement - ANSWERSincome statement that groups costs into
variable costs and fixed costs to highlight the contribution margin
Operating income - ANSWERScontribution margin - fixed costs
OR
CM % x revenues - fixed costs
Increase in contribution margin exactly equals ... - ANSWERSthe increase in operating income
Contribution margin percentage - ANSWERScontribution margin per unit / selling price
- aka contribution margin ratio
- CM per dollar of revenue
- how a change in revenues changes contribution margin
CM ratio example
