- 20 Marks
IA – OCT 2022 – L1 – Q7 – Cost-Volume-Profit Analysis
Mention assumptions of CVP analysis and compute contribution/sales ratio, break-even volume, and sales value.
Question
a. Cost-volume-profit (CVP) analysis is a technique available to management for use to better understand the inter relationship of several factors which affect a firm’s profit. As with many such techniques, the accountant oversimplifies the real world by making certain assumptions.
Mention five major assumptions underlying CVP analysis
(10 marks)
b. A company makes a single product that has a variable cost of sales of GHe12 and selling price of GHe20 per unit. Budgeted fixed cost is GHe450,000.
i. Compute the Contribution/sales ratio.
(2 marks)
ii. What is the volume of sales required to break even?
(4 marks)
iii. What is the value of sales required to break even?
(4 marks)
(Total: 20 marks)
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