COST ACCOUNTING
COST VOLUME PROFIT ANALYSIS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Volume of activity where the organization’s revenue and expenses are equal
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Level of sales is no profit or loss
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One of application of CVP analysis
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State the amount sales can drop before losses begin
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Detailed explanation-1: -Answer and Explanation: A) the point where total profit equals total fixed expenses. This is incorrect because, at the break-even point, the total contribution margin and the total fixed costs are equal.
Detailed explanation-2: -Total profit at the break-even point is zero.
Detailed explanation-3: -The correct answer is a) Statements 1) and 3) are correct. The company starts by deciding the sales mix and computes the break-even analysis afterwards. The contribution margin ratio is computed by deducting variable cost from sales then dividing the difference by sales.
Detailed explanation-4: -Lower sales prices will decrease the contribution margin per unit and cause the break-even point in unit sales to increase.