COST ACCOUNTING
COST VOLUME PROFIT ANALYSIS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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P 0
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P 0.50
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P 1.00
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P 1.50
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Detailed explanation-1: -To calculate the break-even point in units use the formula: Break-Even point (units) = Fixed Costs ÷ (Sales price per unit – Variable costs per unit) or in sales dollars using the formula: Break-Even point (sales dollars) = Fixed Costs ÷ Contribution Margin.
Detailed explanation-2: -Break-Even Sales Formula = FC / (ASP-AVC) FC is the Fixed Cost. ASP is the Average Selling Price per unit. AVC is the Average Variable Cost per unit.
Detailed explanation-3: -Holding other factors constant an increase in variable costs leads to an increase in the break-even point. This is because as the variable costs increase the contribution margin will decrease resulting in a need for more revenues to be able to cover the fixed costs.