COST ACCOUNTING
COST VOLUME PROFIT ANALYSIS
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
volume of operations necessary to break-even
|
|
|
relationship between revenue and costs at various level of operation
|
|
|
variable revenue necessary to equal fixed costs
|
|
|
sales revenue necessary to equal variable costs
|
Detailed explanation-1: -Cost-Volume-Profit Analysis (CVP analysis), also commonly referred to as Break-Even Analysis, is a way for companies to determine how changes in costs (both variable and fixed) and sales volume affect a company’s profit.
Detailed explanation-2: -A CVP analysis helps a company improve decision-making because it can give the company an in-depth understanding of how its costs affect its profits. The CVP can give insight into what the company’s price should be and if it needs to cut costs to stay within a reasonable price range for the market.
Detailed explanation-3: -A critical part of CVP analysis is the point where total revenues equal total costs (both fixed and variable costs). At this breakeven point (BEP), a company will experience no income or loss.
Detailed explanation-4: -Answer and Explanation: The organizational function of management is where CVP analysis is most applicable, as this gives managers a sense of what they will need and how much they need to produce to break even and make profits.
Detailed explanation-5: -Cost-volume-profit analysis informs, to start with, a business person of the volume of sales required to at least break-even in a new business venture. Cost-volume-profit analysis also informs a business problem of the volume of sales required to achieve a certain amount or a budgeted amount of operating income.