Cost Volume Profit Analysis: Its Assumptions and Their Pitfalls By Duncan Williamson Introduction The importance of identifying and criticising the underlying assumptions of cost volume profit analysis (CVP analysis) rests on the practical application of it: anyone who has ever tried (or anyone who may wish) to apply CVP analysis in reality‚ whilst trying to apply the substance of CVP theory will have found severe difficulties. These notes will help you solve those problems. Rendesia
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a way to change costs and revenue so as to obtain a profit of 176 million. I. PROBLEM STATEMENT How to re-organize the firm to achieve a profit of Lit. 176 million a year‚ which would be almost 9% of sales of Lit 1‚980 million? II. OBJECTIVES a. to show the changes in income statement when selling price is assumed to increase. b. to show the changes in income statement when fixed costs are assumed to decrease. c. to show the changes in income statement when variable costs are assumed to decrease
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manufacture of RecRobo‚ a three-wheeled robot that can scan a home for fires and gas leaks and then transmit this information to a mobile phone. The cost structure to manufacture 20‚000 RecRobo’s is as follows. Cost Direct materials ($40 per robot) $ 800‚000 Direct labor ($30 per robot) 600‚000 Variable overhead ($6 per robot) 120‚000 Allocated fixed overhead ($25 per robot) 500‚000 Total $2‚020‚000 SY Telc is approached by Chen Inc. which offers to make RecRobo for $90 per unit or $1‚800‚000
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booklet to the invigilator at the end of the test. Question 1 (12 marks) ANSWER ALL 12 Multiple Choice Questions (1 mark each). Use BLOCK LETTERS for your MCQ answers. 1. Which of the following item is not an example of a conversion cost? A) Wages of assembly worker B) Depreciation of factory machinery C) Screws used for the production of spectacles D) Salary of quality control supervisor E) Fabric used for the production of T-shirts 2. Which
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operators did not have to spend on advertising and no problem in dealing with customers as the price of fuel was fixed. However‚ the cons are the fuek business had a very low profit margin‚ product loss due to evaporation of fuel during filling and the increasing cost of credit card fees paid to banks. As an Area Manager of GEZ Bhd‚ Mr Aiman was responsible
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are both planning tools and performance evaluation. The most common important element in budget is some measure of anticipated output such as the number of units to be produce‚ the number of units to be sold‚ the cost of good sold_direct material‚ direct labor‚ overhead cost‚.. need in production‚ selling and administrative expenses‚…. The flexible budget is a performance evaluation tool which can not be prepared before the end of period being budgeted. It adjusts the static budget for
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achieving a level of sales that covers its total costs. But what level of sales is necessary to break-even? To explore the concept of break-even‚ we need to define some basic terms: Fixed costs: Costs that do not vary with output or sales e.g. managers salaries‚ rent and rates on business premises. Variable costs: Costs that vary with the quantity produced or sold e.g. costs of materials and wages Total cost: Fixed costs plus variable costs for any possible level of output. Sales
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SBUS10050 Excel Exam The Excel Practical Exam: You will be asked to complete a financial forecast for a small company. You will each receive a unique excel file. The file contains a set of instructions on the ‘Instructions’ sheet‚ a set of data on the ‘Excel test data’ sheet and a sheet containing the set of definitions of financial terms (also given at the end of this document). You are required to follow the instructions to complete a financial forecast‚ create a graph and answer a descriptive
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Accounting Cost terminology Conversion cost - The sum of direct labor cost and manufacturing overhead cost. DM – Direct materials are materials that become an integral part and whose costs can be conveniently traced to the finished product. Direct Labor - Those labor costs that can be easily traced to individual units of product. Manufacturing overhead - Manufacturing costs that cannot be traced directly to specific units produced. Non-manufacturing costs: Period costs – All costs that are not
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CHAPTER 1: COST VOLUME PROFIT ANALYSIS LEARNING OBJECTIVES: At the end of this chapter‚ you should be able to: * Describe the differences between the accountant’s and the economist’s model of cost volume profit analysis. * Apply the cost volume profit approaches in the calculation of breakeven point‚ margin of safety‚ target selling price and sales volume. * Construct breakeven‚ contribution and profit volume graph. * Apply cost volume profit analysis in a multi product setting *
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