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planning budgeting and forecasting
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Cards (12)
What is cost-volume-profit analysis concerned with?
Effects on
net operating income
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What are the key factors that cost-volume-profit analysis considers?
Selling prices, sales volume,
unit variable costs
,
total fixed costs
, and product mix
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What are the major assumptions of cost-volume-profit analysis?
Constant
selling price
, linear costs, constant
sales mix
, and no change in
inventories
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Why is the contribution approach used in cost-volume-profit analysis?
It highlights
cost behavior
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What is the formula for calculating break-even sales value?
Break-even sales value =
break-even units
*
selling price per unit
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What is the formula for calculating break-even units?
Break-even units = total fixed expenses /
contribution margin
per unit
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What is the formula for calculating margin of safety in terms of sales revenue?
Margin of safety = total sales revenue -
break-even sales revenue
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What is the formula for calculating margin of safety in terms of units?
Margin of safety = total sales units -
break-even sales units
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What is zero-based budgeting?
Starting from scratch, analyzing every
function
for its needs and costs
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Why is zero-based budgeting useful?
It requires all costs to be
specifically
justified by the
benefits
expected
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What are the key questions asked in cost-volume-profit analysis?
What is the scale of the business?
How much should be produced?
What point do they
break even
?
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What are the major assumptions of cost-volume-profit analysis?
Selling price
is constant
Costs are
linear
and can be accurately split into
fixed
and
variable
elements
Sales mix is constant in
multi-product
companies
Inventories
do not change – the number of
units
produced
equals the number of
units sold
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