Cost Volume Profit (CVP) Analysis: The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit. Contribution margin means the margin that is left with the company after recovering variable cost out of revenue earned by selling smart phones. The formula for contribution margin is as follows: Contribution margin = Sales - Variable cost. Similarly contribution margin ratio = Contribution/sales Breakeven Point: The Breakeven point is the level of sales at which the net profit is nil. It can be explained as a situation where the business is generating a sale that is equal to the expenses incurred and hence no profits no loss. Breakeven point in units is calculated with the help of following formula: Breakeven point ( units ) = Total Fixed Costs (Sales Price Per unit -Variable Cost per unit) Weighted Average Contribution Margin: Weighted Average Contribution Margin is calculated for two products with the help of following formula: W e i g h t e d A v e r a g e C o n t r i b u t i o n M a r g i n = ( C o n t r i b u t i o n m a r g i n o f P r o d u c t A * W e i g h t o f p r o d u c t A ) + ( C o n t r i b u t i o n m a r g i n o f P r o d u c t B * W e i g h t o f p r o d u c t B ) To Calculate: The Breakeven point in units for each product

Question

For the coming year, the sales mix is expected to change so that 2 units of product B will be sold for every unit of product P Instructions: Determine the number of units for each product that must be sold in order to recover the total fixed cost in prior year. Determine the number of units for each product that must be sold in the coming year in order to break even. Determine the number of units for each product that must be sold in the coming year in order to realized a profit of P500,000 before tax.

Answer 1

Question

Chapter 11, Problem 11.5.4P

To determine

Concept Introduction:

Cost Volume Profit (CVP) Analysis:

The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.

Contribution margin means the margin that is left with the company after recovering variable cost out of revenue earned by selling smart phones. The formula for contribution margin is as follows:

Contribution margin = Sales - Variable cost.

Similarly contribution margin ratio = Contribution/sales

Breakeven Point:

The Breakeven point is the level of sales at which the net profit is nil. It can be explained as a situation where the business is generating a sale that is equal to the expenses incurred and hence no profits no loss. Breakeven point in units is calculated with the help of following formula:

Breakeven point (units) = Total Fixed Costs(Sales Price Per unit -Variable Cost per unit)

Weighted Average Contribution Margin:

Weighted Average Contribution Margin is calculated for two products with the help of following formula:

Weighted Average Contribution Margin = (Contribution margin of Product A * Weight of product A) + (Contribution margin of Product B * Weight of product B)

To Calculate:

The Breakeven point in units for each product

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