Cost Volume Profit Analysis
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1.Explain the components of cost-volume-profit analysis.
2.What does each of the components mean?
3.What happens to contribution margin per unit when unit selling prices increase? Illustrate your explanation with an example from a fictitious company of how an increase in unit selling prices might affect contribution margin.
4.When fixed costs decrease, what does this do for sales? Illustrate your explanation with an example from a fictitious company.
5.Define contribution ratios.
6.What happens to contribution ratios as one of the components changes?
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1) The basic components of cost-volume-profit analysis are:
a) Volume or level of activity: The amount of output or sales
b) Unit selling price: This is the price the firm assigns for selling its products
c) Variable cost per unit: Those are costs that stay fixed on a per unit basis, but change in total with different levels of activity.
d) Total Fixed Costs. Those are fixed in total, but vary on a per unit basis depending on the level of ...
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