3.4 Decision Making Techniques

• Decision making techniques are used to evaluate different options and make informed choices
• Match the decision-making technique with its purpose:

  Cost-Volume-Profit (CVP) Analysis ↔️ Analyzes how changes in costs and sales volume affect profit

  Break-Even Analysis ↔️ Determines the point at which total revenue equals total costs

  Marginal Costing ↔️ Focuses on the incremental cost of producing one additional unit

  Sensitivity Analysis ↔️ Examines how changes in key variables impact the outcome
• What does Cost-Volume-Profit (CVP) Analysis analyze?

  Changes in costs and volume
• Break-Even Analysis determines the point where total revenue equals total costs.
• Marginal costing focuses on the incremental cost of producing one additional unit
• What does Sensitivity Analysis examine?

  Impact of variable changes
• Cost-Volume-Profit (CVP) Analysis requires fixed costs, variable costs, and selling price as inputs.
• Break-Even Analysis uses fixed costs, variable costs, and selling price
• What input is required for Marginal Costing?

  Variable costs
• What are decision-making techniques used for?

  Evaluating options
• Marginal costing focuses on the incremental cost of producing one additional unit
• What does Sensitivity Analysis assess?

  Impact of variable changes
• What does Cost-Volume-Profit (CVP) Analysis examine?

  Costs, volume, and profitability
• Match the CVP component with its definition:

  Fixed Costs ↔️ Costs that remain constant regardless of production levels

  Variable Costs ↔️ Costs that vary directly with production

  Selling Price ↔️ Price at which a product or service is sold

  Break-Even Point ↔️ Sales level where total revenue equals total costs

  Target Profit ↔️ Desired profit level a company aims to achieve
• What is an example of a fixed cost?

  Rent
• Variable costs change directly with production levels.
• What does the break-even point represent in CVP Analysis?

  Total revenue equals total costs
• What does Cost-Volume-Profit (CVP) Analysis analyze?

  Changes in profit due to costs and volume
• Break-Even Analysis determines the point where revenue equals costs
• Marginal costing calculates the incremental cost per unit.
• Match the decision-making technique with its purpose:

  Cost-Volume-Profit (CVP) ↔️ Analyze profit changes

  Break-Even Analysis ↔️ Determine break-even point

  Marginal Costing ↔️ Calculate incremental cost

  Sensitivity Analysis ↔️ Assess variable impact
• What relationship does CVP Analysis examine?

  Total costs, sales volume, profitability
• Fixed costs remain constant regardless of production
• Variable costs vary directly with production levels.
• What is the break-even point in CVP Analysis?

  Sales level where revenue equals costs
• What is one benefit of CVP Analysis?

  Facilitates better decision making
• Steps to calculate the break-even point:

  1️⃣ Identify fixed costs

  2️⃣ Determine variable cost per unit

  3️⃣ Find the selling price per unit

  4️⃣ Apply the formula
• Variable costs change linearly with sales volume
• What is the break-even point for XYZ Company with \$50,000 fixed costs, \$100 selling price, and \$60 variable cost per unit?

  1,250 units
• Break-Even Analysis helps businesses understand how many units must be sold to cover all expenses.
• What is the formula for calculating the margin of safety?

  Margin\:of\:Safety = Actual\:Sales - Break\:Even\:Sales</latex>
• If actual sales are 1,500 units and break-even sales are 1,250 units, the margin of safety is 250 units.
• Variable costing values inventory with only variable costs.
• What does break-even analysis determine?

  Total revenue equals total costs
• Marginal costing focuses on the incremental cost per unit
• What is the purpose of Cost-Volume-Profit (CVP) Analysis?

  Analyzes profit changes
• Break-Even Analysis determines the point where revenue equals costs
• Marginal costing calculates the incremental cost per unit.
• Match the decision-making technique with its purpose:

  Cost-Volume-Profit (CVP) ↔️ Analyze profit changes

  Break-Even Analysis ↔️ Determine break-even point

  Marginal Costing ↔️ Calculate incremental cost

  Sensitivity Analysis ↔️ Assess variable impact
• What does sensitivity analysis assess?

  Impact of variable changes