CPP Financial Analysis & Planning 3

Question 1

A product has a selling price of $120, variable cost of $72, and allocated fixed cost of $30. What is the product's contribution margin per unit?

Accepted Answer

$48

Answer

Contribution margin = Selling price - Variable cost = $120 - $72 = $48; fixed costs are not deducted for contribution margin.

Question 2

What is the primary purpose of a sensitivity analysis in pricing financial models?

Accepted Answer

To assess how changes in key assumptions affect outcomes

Answer

Sensitivity analysis tests how variations in key input assumptions (e.g., price, volume, costs) affect the model's output.

Question 3

Which pricing scenario would most likely improve Return on Investment (ROI) without a volume change?

Accepted Answer

Decreasing variable cost per unit

Answer

Reducing variable cost per unit increases contribution margin and profit without requiring additional revenue, improving ROI.

Question 4

A company's target costing approach sets the product cost as:

Accepted Answer

Market price minus desired profit margin

Answer

Target costing works backward from the competitive market price minus the required profit to establish the maximum allowable cost.

Question 5

Which variance indicates that actual revenue differs from budgeted revenue due to a difference in selling price?

Accepted Answer

Price variance

Answer

Price variance isolates the revenue impact attributable solely to differences between actual and budgeted selling prices.

(CPP) Certified Pricing Professional Practice Test