Managerial Accounting & CVP

What is cost behavior analysis?

• Cost behavior analysis is the study of how costs change as activity levels change within a business.

• Cost behavior analysis is the study of how costs are not affected by changes in business operations.

Define contribution margin.

• Contribution margin is the total revenue minus the total variable costs

• Contribution margin is the selling price per unit minus the variable cost per unit.

Explain break-even analysis.

• Break-even analysis calculates the level of sales needed to cover all costs.

• Break-even analysis determines the best marketing strategy.

How is a Cost-Volume-Profit graph used in managerial accounting?

• It is used to forecast market demand

• It is used to analyze the relationship between costs, volume of production, and profits in managerial accounting.

What is the Margin of Safety and why is it important?

• The Margin of Safety is the same as the Gross Margin, showing the percentage of revenue that exceeds the cost of goods sold.

• The Margin of Safety is the difference between the actual or breakeven sales and the sales at the point of no profit, providing a cushion against uncertainties. It is important as it indicates how much sales can drop before a business starts incurring losses.

In cost behavior analysis, what are the three main types of costs?

• Direct costs, indirect costs, manufactured overhead

• Fixed costs, variable costs, mixed costs

How is contribution margin calculated?

• Contribution Margin = Variable Costs / Total Sales Revenue

• Contribution Margin = Total Sales Revenue - Variable Costs

What is the formula for calculating the break-even point in unit?

• Break-Even Point (in units) = Fixed Costs / (Selling Price per Unit - Variable Costs per Unit)

• Break-Even Point (in units) = Fixed Costs * (Selling Price per Unit - Variable Costs per Unit)

What does the intersection point on a Cost-Volume-Profit graph represent?

• Break-even point

• Profit-maximizing point

How can a company increase its Margin of Safety?

• By increasing sales revenue or decreasing fixed costs

• By decreasing sales revenue or increasing fixed costs