MANAGERIAL
ACCOUNTING
Charles E. Davis
Elizabeth Davis
Cost Volume Profit Analysis and Pricing
Decisions
• Breakeven Analysis
• Cost Volume Profit Analysis
• Multiproduct CVP Analysis
• Pricing Decisions
Breakeven Analysis
1.
What does it mean to break even?
2.
If a product’s variable cost per unit increases while the selling
price and fixed costs remain constant, what will happen to
the breakeven point?
3.
How do you calculate the breakeven point in units? In
dollars?
4.
What actions can a company take to reduce its breakeven
point?
5.
What is the margin of safety? How is it calculated?
Cost Volume Profit Analysis
1. How can managers use CVP analysis to determine the
level of sales needed to attain a specific level of
operating income?
2. How can managers use CVP analysis to support their
decision making?
3. What assumptions are made in CVP analysis? Do those
assumptions invalidate the predictions managers make
using CVP analysis?
4. Explain the concept of operating leverage.
Multiproduct CVP Analysis
1. What is meant by the term sales mix?
2. How do you calculate the sales required to break even
or achieve a target operating income in a multiproduct
setting?
3. What assumption is required in multiproduct CVP
analysis but is not necessary in single-product CVP
analysis?
Pricing Decisions
1. Define markup. How does a markup percentage differ
from the gross margin percentage?
2. Explain cost-plus pricing. What are some flaws of cost
plus pricing?
3. Explain how competitors influence the price under cost-
plus pricing.
4. Explain target costing. What alternatives does a
company have if it cannot make a product at the target
cost?