3 Questions
Match the following financial terms with their definitions:
P/V Ratio = Percentage of contribution margin to sales BEP = Level of sales at which total revenues equal total costs Margin of Safety = Excess of budgeted or actual sales over the break-even sales Contribution Margin = Difference between total sales and total variable costs
Match the following cost and revenue changes with their effects on P/V Ratio, BEP, and Margin of Safety:
20% decrease in fixed costs = Increase in P/V Ratio, Decrease in BEP, Increase in Margin of Safety 10% increase in fixed costs = Decrease in P/V Ratio, Increase in BEP, Decrease in Margin of Safety 10% decrease in variable costs = Increase in P/V Ratio, Decrease in BEP, Increase in Margin of Safety 10% increase in variable costs = Decrease in P/V Ratio, Increase in BEP, Decrease in Margin of Safety
Match the following combined cost and revenue changes with their effects on P/V Ratio, BEP, and Margin of Safety:
10% decrease in fixed costs and 10% increase in variable costs = Increase in P/V Ratio, Decrease in BEP, Increase in Margin of Safety 20% increase in fixed costs and 20% decrease in variable costs = Decrease in P/V Ratio, Increase in BEP, Decrease in Margin of Safety 30% decrease in fixed costs and 30% increase in variable costs = Increase in P/V Ratio, Decrease in BEP, Increase in Margin of Safety 40% increase in fixed costs and 40% decrease in variable costs = Decrease in P/V Ratio, Increase in BEP, Decrease in Margin of Safety
Study Notes
Financial Terms and Definitions
- Financial terms have specific meanings and interpretations in the business context
- Terms are crucial in understanding financial concepts and analyses
Cost and Revenue Changes
- Various cost and revenue changes affect Profit-Volume (P/V) Ratio, Break-Even Point (BEP), and Margin of Safety
- Understanding these effects is essential in making informed business decisions
- Changes can be categorized into individual cost and revenue changes, and combined cost and revenue changes
Individual Cost and Revenue Changes
- Changes in fixed cost, variable cost, selling price, and volume of sales impact P/V Ratio, BEP, and Margin of Safety
- Effects of individual changes on these financial metrics need to be analyzed and understood
Combined Cost and Revenue Changes
- Simultaneous changes in multiple cost and revenue elements affect P/V Ratio, BEP, and Margin of Safety
- Analyzing combined changes helps in understanding the cumulative impact on business performance and profitability
Test your understanding of cost-volume-profit analysis with this quiz. Calculate the P/V ratio, BEP, and Margin of Safety for GIDANI POWER Ltd. and explore the impact of changes in fixed and variable costs on these financial metrics. Sharpen your knowledge of cost behavior and its influence on business profitability.
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