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Finance/Accounting : Cost-Volume-Profit

9. What is the basic C-V-P equation? What is a more detailed version of this equation?
10. What is the contribution margin, and why is it important for managers to know the contribution margins of their products?
11. How much will profits increase for every unit sold over the break-even point?
12. What is the major advantage of using C-V-P graphs?
13. When other factors are constant, what is the effect on profits of an increase in fixed costs? Of a decrease in variable costs?
14. What are the limiting assumptions of C-V-P analysis?

keywords: cost, volume, profit

Solution Preview

9. The Cost-volume-profit equation is based on the profit equation:
Profit = Sales - Variable Costs - Fixed Costs = S - VC - FC
A detailed version of the equation uses the relationship that S = P * Q and VC = AVC * Q, then:
Profit = (P-AVC)Q-FC

10.Contribution margin is the difference between sales and variable costs. The unit contribution margin (CM)

is the difference ...

Solution Summary

CVP is investigated.