Concept introduction:
Cost Volume Profit (CVP) Analysis:
The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.
Contribution margin means the margin that is left with the company after recovering variable cost out of revenue earned by selling smart phones. The formula for contribution margin is as follows:
Contribution margin = Sales - Variable cost.
Similarly contribution margin ratio = Contribution/sales
To choose:
The correct option about a multiproduct CVP Analysis
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- Break-even for a multiple product firm. can be calculated by dividing total fixed costs by the contribution margin of a composite unit can be calculated by multiplying fixed costs by the contribution margin ratio of a composite unit can only be calculated when the proportion of products sold is the same for all products can be calculated by multiplying fixed costs by the contribution margin ratio of the most common product in the sales mixarrow_forwardThe use of fixed costs to extract higher percentage changes in profits as sales activity changes involves a. margin of safety. b. unit contribution margin. c. degree of operating leverage. d. sensitivity analysis. e. variable cost reduction.arrow_forwardThe contribution margin is the a. amount by which sales exceed total fixed cost. b. difference between sales and total cost. c. difference between sales and operating income. d. difference between sales and total variable cost. e. difference between variable cost and fixed cost.arrow_forward
- The decision of whether to process products beyond the splitoff process should be based on which of the following?  Select one: a. Production cost analysis b. Revenue analysis c. Incremental operating income attainable beyond the splitoff point d. Relevant cost analysis e. Gross margin analysisarrow_forwardCVP analysis with multiple products assumes that sales will continue at the same mix of products, expressed in either sales units or sales dollars. This assumption is essential, because a change in the product mix will probably change:  Multiple Choice  The average variable cost per unit.  The average sales price per unit.  The weighted-average contribution margin (per unit or ratio).  The total fixed cost.  The average contribution margin (per unit or ratio).arrow_forwardUsing sales value at split-off, what amount of joint processing cost is allocated to Product Alpha? Using a physical measurement method, what amount of joint processing cost is allocated to Product Gamma? Using net realizable value at split-off, what amount of joint processing cost is allocated to Product Delta?arrow_forward
- CVP analysis is most important for the determination of [A] sales revenue necessary to equal fixed costs [B] relationship between revenues and costs at various levels of operations [C] variable revenues necessary to equal fixed costs [D] volume of operations necessary to Break-evenarrow_forwardDefine the term break-even point. What is the variable cost ratio? The contribution margin ratio? How are the two ratios related? Define the term sales mix. Give an example to support your definition.arrow_forwardWhen management believes that there is a direct link between the joint costs incurred and the value of products before further processing takes​ place, the​ _____ is the best alternative to allocating joint costs.  A.physical measures methodB.NRV methodC.sales value at splitoff methodD.constant grossmargin percentage methodarrow_forward
- Which of the following statements about CVP analysis is false ? a. Total revenues and total costs are linear in relation to output units . b. Managers use (CVP ) analysis to study the behavior of and relationship among the elements such as total revenues , total costs , and income c. All of the given answers are true . d. Unit selling price , unit variable costs , and total fixed costs are known and remain constant . e. Operating income calculations in CVP analysis are based on contribution margin not gross margin .arrow_forwardOn a CVP graph, the intersection of the sales revenue line and the total cost line is known as the: a. margin of safety point b. total cost point c. breakeven point d. unit contribution marginarrow_forwardIn applying the high-low method of cost estimation to mixed costs, how is the total fixed cost estimated? How does the sales mix affect the calculation of the break-even point?arrow_forward
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