Cost Volume Profit Analysis - Target Profit Analysis in Accounting

The video tutorial explains Cost-Volume-Profit (CVP) analysis, focusing on determining the sales level needed to achieve a specific operating income. It introduces a basic profit equation and breaks down its components: unit sales price (USP), unit variable cost (UVC), and fixed costs (FC). The tutorial simplifies the equation to find the target profit in units or dollars, using the unit contribution margin (UCM) and contribution margin ratio (CMR). An example demonstrates calculating the number of units or sales dollars required to reach a desired net operating income.

What is the primary purpose of CVP analysis?

• To find the break-even point in terms of units

• To calculate the total fixed costs of a business

• To assess the variable costs per unit

• To determine the level of sales needed to achieve a specific operating income

In the profit equation, what does USP stand for?

• Unit Selling Price

• Unit Standard Price

• Unit Sales Price

• Universal Sales Price

How can the profit equation be simplified?

• By ignoring the operating income

• By using only the variable costs

• By eliminating the fixed costs

• By combining USP and UVC terms

What does UCM represent in the simplified profit equation?

• Unit Contribution Margin

• Universal Contribution Margin

• Unit Cost Management

• Universal Cost Margin

When calculating the target profit in dollars, which denominator should be used?

• Unit Contribution Margin (UCM)

• Contribution Margin Ratio (CMR)

• Fixed Cost Ratio (FCR)

• Variable Cost Ratio (VCR)

In the example provided, how many units need to be sold to achieve a net operating income of $20,000?

• 750 units

• 834 units

• 500 units

• 1,000 units

What is the approximate dollar amount of sales needed to achieve a net operating income of $20,000?

• $50,000

• $30,000

• $41,667

• $25,000