Flashcards
cost-volume analysis
Cards in this deck (10)
- 1SALES*CONTRIBUTION + VC
*AS A % OF NET PROFIT
*BREAK-EVEN(BE) + MARGIN OF SAFETY(MOS) - 2BREAKEVEN (BE)=FIXED COST/CM%>>>TOTAL
=FIXED COSTS/CM>>>UNITS - 3MARGIN OF SAFETY & MARGIN OF SAFETY RATIOMOS=SALES-BE
MOS%=(SALES-BE)/SALES - 4NET PROFIT=MOS X CM%
- 5CONTRIBUTION MARGIN & CONTRIBUTION MARGIN RATIO=SALES-TVC
=CONTRIBUTION/SALES - 6OPERATING LEVERAGEDEF: The sensitivity of net profit to changes in sales
=CONTRIBUTION/PROFIT>>>FACTOR
e.g. sales change by 25%
change in profit=FACTOR X 25%
*the higher the leverage the higher the sensitivity - 7BREAK-EVEN FOR ENTITIES WITH MORE THAN ONE PRODUCT1. DETERMINE SALES MIX
2.DETERMINE SEPERATE CONTRIBUTION
3.COMBINE THE CONTRIBUTIONS BASED ON SALES MIX RATIO eg. x+2y [sum Total contribution/sum of units=avrg contri]
4. calculate BE
- 8State the ASSUMPTIONS of CVPSingle product or constant sales mix
Complexity related fixed costs do not change
Profits are calculated on a variable costing basis
Total costs and total revenue are linear functions of output
The analysis applies to the relevant range only
Costs can be accurately divided into their fixed and variable elements. - 9LINEAR PROGRAMMING ASSUMPTIONSLinearity (constant contribution per unit of output)
• Perfect divisibility of outputs and inputs
• Relationships may be expressed as linear formulas
• All costs vary with a single volume-related output measure, or
are otherwise fixed.
• Short-term focus (constraints consist over the short term)
• The products produced are not produced in a fixed
combination - 10how do you intrepret risk based on standard deviationthe higher the risk the higher the standard deviation.
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- this is a summary of formulae used in cost-volume analysis
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- Tshilidzi Thathaisa
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