# ACCA F5 - Cost Volume Profit Analysis

5 Questions | Total Attempts: 295  Settings  Changes in the cost and volume of a product have an effect on the net income from an investment or production. Having a proper understanding on how these two increase or decrease profits can help put your business on the map. Test out how well you understand them by taking this quiz.

• 1.
Also known as CVP analysis, or cost-volume-profit analysis. _____ - _____ analysis is the study of the effects on future profit of changes in fixed cost, variable cost, sales price, quantity and mix.
• 2.
CVP analysis is a particular example of ‘what if?’ analysis. A business sets a budget based upon various __________ about revenues, costs, product mixes and overall volumes. CVP analysis considers the impact on the budgeted profit of changes in these various factors.
• 3.
Cost _________ is affected by the interplay of a number of factors. Physical volume is only one of these factors; others include unit prices of input, efficiency, changes in production technology, wars, strikes, legislation, and so forth. Any CVP analysis is based on assumptions about the ________ of revenue, costs and volume. A change in expected _________ will alter the break-even point; in other words, profits are affected by changes in other factors besides volume.
• 4.
A CVP chart must be interpreted in the light of the limitations imposed by its underlying ___________. The real benefit of preparing CVP charts is in the enrichment of understanding of the interrelationships of all factors affecting profits, especially cost behaviour patterns over ranges of volume.
• 5.
The following underlying assumptions will limit the precision and reliability of a given cost-volume-profit analysis.
• A.

The behaviour of total cost and total revenue has been reliably determined and is linear over the relevant range

• B.

All costs can be divided into fixed and variable elements

• C.

Total fixed costs remain constant over the relevant volume range of the CVP analysis

• D.

Total variable costs are directly proportional to volume over the relevant range

• E.

Selling prices are to be unchanged

• F.

Prices of the factors of production are to be unchanged (for example, material, prices, wage rates).

• G.

Efficiency and productivity are to be unchanged

• H.

The analysis either covers a single product or assumes that a given sales mix will be maintained as total volume changes

• I.

Revenue and costs are being compared on a single activity basis (for example, units produced and sold or sales value of production).

• J.

Perhaps the most basic assumption of all is that volume is the only relevant factor affecting cost. Of course, other factors also affect costs and sales. Ordinary cost-volume-profit analysis is a crude oversimplification when these factors are unjustifiably ignored

• K.

The volume of production equals the volume of sales, or changes in beginning and ending inventory levels are insignificant in amount.

• L.

Total fixed vary over the relevant volume range of the CVP analysis

• M.

Revenue and costs are being compared on a single or multi activity basis (for example, units produced and sold or sales value of production).

• N.

Total fixed costs vary over the relevant volume range of the CVP analysis

Related Topics Back to top