# ACCA F5 - Cost Volume Profit Analysis

5 Questions | Total Attempts: 147  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.

Related Topics
• 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