Sample Questions - CVP Analysis
1. Differentiate between fixed costs and variable costs.
2. Discuss how the total fixed costs change when;
a. Volume of production increases.
b. Volume of production decreases.
3. Discuss how the total variable costs change when;
a. Volume of production increases.
b. Volume of production decreases.
4. Discuss what is meant by contribution margin.
5. Discuss what is meant by break-even price.
6. Joraki Wholesalers is a popular distributor specialized in selling one kind of household products in the Midwest. The company's annual sales are $500,000 and it annually sales 100,000 units. Its annual fixed costs are $120,000 and the annual variable costs are $160,000.
a. Compute the contribution margin per unit
b. Compute the break-even sales volume
c. Compute the yearly margin of safety
Use the following information to answer questions 7-10
Jefferson Candies Inc. makes chocolate candies targeting children. The company makes 2,000,000 packets of Candy a year. Jefferson Candies' annual sales are $ 6,000,000. The following information was obtained from its internal financial statements for the past year.
| manufacturing costs | |
|---|---|
| Fixed | $400,000 |
| Variable | $500,000 |
| Other costs | |
| Fixed | $350,000 |
| Variable | $150,000 |
7. Calculate for the following:
a. Contribution margin per each packet of candy?
b. Contribution margin ratio?
8. What is the break-even sales volume?
9. What is the minimum price will the company charge per bag without incurring a loss?
10. How many packets of candy will Jefferson Candies sell in a year to make an income of $3,000,000?