Cambridge International AS Level · Accounting (9706)

Traditional costing methods - Cost–volume–profit analysis: Practice Questions

2 multiple-choice questions marked as you go, and 4 written questions with worked solutions. All on Traditional costing methods - Cost–volume–profit analysis.

6 questions14 marksFree, no account

Question 1

1 mark

Which of the following is an advantage of using Cost–volume–profit (CVP) analysis for management decision-making?

Question 2

1 mark

What is defined as the extent to which the current level of sales exceeds the break-even point?

Question 3

2 marks

Explain one limitation of using Cost–volume–profit (CVP) analysis for a business that produces multiple products with different contribution margins.

Write your answer out first, then check it against the worked solution.

Question 4

2 marks

Identify two non-financial factors that a management team should consider when using cost–volume–profit data to decide whether to close a specific production line.

Write your answer out first, then check it against the worked solution.

Question 5

3 marks

Z-Tech Ltd produces a single component for the automotive industry. The following information is available for the month of October:

Selling price per unit: $\$45$
Variable cost per unit: $\$27$
Total monthly fixed costs: $\$54,000$

The company is considering an expansion that would increase monthly fixed costs by $\$9,000$ but would reduce the variable cost per unit to $\$24$.

(a) Calculate the current break-even point in units for Z-Tech Ltd.
(b) Calculate the contribution to sales (C/S) ratio under the new expansion proposal.
(c) State one limitation of cost-volume-profit (CVP) analysis.

Write your answer out first, then check it against the worked solution.

Question 6

5 marks

A local manufacturer, Decor Ltd, provides the following budgeted data regarding its production for the next quarter:

Budgeted sales: $12,000$ units
Unit selling price: $\$80$
Direct materials: $\$25$ per unit
Direct labour: $\$15$ per unit
Variable overheads: $\$10$ per unit
Total fixed overheads: $\$180,000$

The directors are evaluating the margin of safety and the impact of a potential price change.

(a) Calculate the contribution per unit.
(b) Calculate the margin of safety as a percentage of budgeted sales.
(c) Calculate the number of units Decor Ltd must sell to achieve a target profit of $\$210,000$.
(d) Explain one non-financial factor Decor Ltd should consider before increasing its selling price to improve profitability.

Write your answer out first, then check it against the worked solution.

* The content provided by thinka is generated by AI and may not always be accurate or up-to-date. Please use it as a supplementary resource and verify with official materials.

You've seen the model answer. Now get yours marked.

This page can show you how a good answer looks. It cannot tell you what your answer was missing. thinka marks your written work against the real mark scheme in about 15 seconds.

Get My Answers Marked Back to the notes

Want more questions like these? Get a fresh set on this topic, marked as you go.

Practise More