Chapter:7 


Cost-Volume-Profit Analysis and Break-Even Analysis

 Review Questions


A. OBJECTIVE TYPE AND MULTIPLE CHOICE QUESTIONS

1. Fill in the blanks using suitable words:

(i) Contribution is the difference between sales and

(ii) P/V ratio is also called as ............ ratio.

(iii) P/V ratio can be increased by the selling price.

(iv) P/V ratio can be increased by reducing the ............ cost.

(v) At break even point there is neither any ............ nor any loss.

(vi) The excess of total sales over sales at break-even-point is called.

(vii) A small angle of incidence indicates a ...... rate of profit.

[Ans. (i) Variable; (ii) Contribution; (iii) Increasing; (iv) Variable; (v) Profit; (vi) Margin of Safety: (vii) Low.]

2. State whether the following statements are True or False :

(i) Contribution is the difference between the sales and the total cost of sales.

(ii) At break-even point the company earns only a marginal profit.

(iii) Contribution is also known as Gross Margin.

(iv) P/V ratio can be improved by increasing the selling price.

(v) P/V ratio can be improved by reducing the fixed costs.

(vi) Margin of safety = Fixed Expenses P/V Ratio

(vii) Margin of safety can be improved by reducing the fixed cost. 

(viii) Break-even analysis is fundamentally a static analysis.

[Ans. (i) False; (ii) False; (iii) True; (iv) True ; (v) False ; (vi) False; (vii) True ; (viii) False] 

3. Multiple Choice Questions

(i) The formula for margin of safety is:

(a) Present Sales-BEP Sales

(b) Profit/PV Ratio

(c) (a) & (b)

(d) Profit/Sales cost.

(ii) If a firm is dealing in several products the......... is calculated.

(a) BEP 

(b) Break-even Sales 

(C). Cash BEP

(d) Composite BEP

Contribution Sales is equal to ........... sales.

(a) P/V Ratio

(b) N/P Ratio

(c) EPS

(d) BEP

(i) indicates the extent to which the sales can be reduced without resulting in loss.

(a) BEP

(c) Key Factor

(b) Margin of Safety

(d) Contribution

[Ans. (i) (c): (ii) (d); (iii) (b); (iv) (a)]

B. SHORT ANSWER TYPE QUESTIONS

1. Define marginal cost.

2. What is contribution ? 

3. What is P/V ratio ?

4. Give marginal cost equation. 

5. What is Break-Even Point ?

6. Define angle of incidence.

7. What is cash break-even point ?

8. What is meant by P/V ratio ?

9. What do you understand by cost-volume-profit analysis ?

10. Give any three objectives or uses of CVP analysis. 

11. What are the main assumptions of CVP analysis?

12. Write a brief note on cost-volume-profit analysis. 

13. What are the limitations of break-even charts?

14. How is margin of safety calculated? Give any four limitations of CVP analysis.

16. What is operating leverage ?

17. What do you mean by cost indifference point?

C. ESSAY TYPE QUESTIONS

1. What do you mean by cost-volume-profit analysis ? Discuss its objectives and assumptions. 

2. What do you understand by contribution ? How does it help management in solving various problems?

3. What is Profit Volume Ratio ? Describe its importance.

4. What is meant by break-even analysis? Discuss the assumptions and the limitations of this technique.

5. Explain the term 'break-even point'. How is it determined and what is its use? 

6. What is a break-even chart ? What is a profit graph ? State the purposes of constructing such charts.

7. "Break-even chart must be applied with an intelligent discrimination, with an adequate graph of assumptions, underlying the technique and of the limitations surrounding its practical applications." Elucidate the statement giving illus







Type-Bharat kalita