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
To Indicate:
The reason for difference in breakeven points of the companies
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Chapter 11 Solutions
Survey of Accounting (Accounting I)
- Both Austin Company and Hill Company had the same unit sales, total costs, and income from operations for the current fiscal year; yet, Austin Company had a lower break-even point than Hill Company. Explain the reason for this difference in break-even points.arrow_forwardC). Construct a cost-volume-profit chart indicating the break-even sales for the current year, assuming that a non-cancellable contract is signed for the additional billboard advertising. No changes are expected in the unit selling price or other costs. Verify your answer, using the break-even equation.arrow_forwardDuring the current year, XYZ Company increased its variable SG&A expenses while keeping fixed SG&A expenses the same. As a result, XYZ’s: Contribution margin and gross margin will be lower. Contribution margin will be higher, while its gross margin will remain the same. Operating income will be the same under both the financial accounting income statement and contribution income statement. Inventory amounts booked under the financial accounting income statement will be lower than under the contribution income statement. Under the contribution income statement, a company’s contribution margin will be: Higher if fixed SG& A costs decrease. Higher if variable SG& A costs increase. Lower if fixed manufacturing overhead costs decrease. Lower if variable manufacturing overhead costs increase.arrow_forward
- During the current year, XYZ Company increased its variable SG&A expenses while keeping fixed SGA expenses the same. As a result, XYZ’s: Contribution margin and gross margin will be lower. Contribution margin will be higher, while its gross margin will remain the same. Operating income will be the same under both the financial accounting income statement and contribution income statement. Inventory amounts booked under the financial accounting income statement will be lower than under the contribution income statement.arrow_forwardUse the information from the previous exercises involving JJ Manufacturing to determine their break-even point in sales dollars.arrow_forwardUse the information from the previous exercises involving Salvador Manufacturing to determine their break-even point in sales dollars.arrow_forward
- a) Compute the breakeven sales dollars of cach product assuming the same sales mix remains constant. b) Prepare an analysis showing whether Product Z should be eliminated. The amount of change to net income should be computed. c) Assume the current demand of cach product is same as the sales volume the company has for the year. Below is the machine processing time required for cach product. Product Machine processing time in hours i. How many units should the company produce for each product if there is a constraint of only 24.000 hours of machine processing time in the year. ii. Compute the highest possible net income camed by the company. 3 2 An accountant has prepared the folowing product-line income statement for the year: Product Tatal No of mts sokd 5,000 4,000 4,000 Saks Varible enpermes 200,000 S 120,000 100,000 S 60.000 40,000 S 20,000 60,000 40,000 20,000 Cotribution mangin 80,000 40,000 20,000 Fihed expenses Rert Depreciin 10,000 12,000 8,000 5.000 6,000 2,000 2,400 3,000…arrow_forwardWingate Company, a wholesale distributor of electronic equipment, has been experiencing losses as shown by its most recent monthly contribution format Income statement: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) In an effort to resolve the problem, the company wants to prepare an income statement segmented by division. Accordingly, the Accounting Department provided the following information: Sales Variable expenses as a percentage of sales Traceable fixed expenses $ 1,578,000 698,940 879,060 967,000 $ (87,940) Sales Variable expenses Reg 2A Contribution margin Traceable fixed expenses Divisional segment margin Common fixed expenses not traceable to divisions Net operating loss East $ 358,000 Req 1 Req 28 Prepare a contribution format income statement segmented by divisions. 48% Answer is not complete. Complete this question by entering your answers in the tabs below. Req 1 $ 300,000 S Required: 1. Prepare a contribution format Income…arrow_forwardCompany A's gross profit rate last year was 32.0% and this year it is 28.4%. Which of the following would not be a possible cause for this decline in the gross profit rate? O Company A's average margin between unit selling price and inventory unit cost is decreasing. O Company A may have seen a decline in total gross profit while maintaining net sales. Company A may have begun selling products with a higher markup. O Company A must have paid higher prices to suppliers without passing these costs on to customers.arrow_forward
- Which of the following is true regarding the contribution margin ratio of asingle product company? a. As fixed expenses decrease, the contribution margin ratio increases b. The contribution margin ratio increases as the number of units sold increase c. The contribution margin ratio multiplied by the variable expense per unit equals thecontribution margin per unit d. If sales increase, the peso increase in net operating income can be computed bymultiplying the contribution margin ratio by the peso increase in salesarrow_forward1. Compute the companywide break-even point in dollar sales. 2. Compute the break-even point in dollar sales for the East region. 3. Compute the break-even point in dollar sales for the West region. 4. Prepare a new segmented income statement based on the break-even dollar sales that you computed in requirements 2 and 3. Use the same format as shown above. What is Crossfire’s net operating income (loss) in your new segmented income statement? 5. Do you think that Crossfire should allocate its common fixed expenses to the East and West regions when computing the break-even points for each region?arrow_forwardWingate Company, a wholesale distributor of electronic equipment, has been experiencing losses as shown by its most recent monthly contribution format income statement: Sales Variable expenses Contribution margin Fixed expenses Net operating income (loss) $ 1,591, 000 706, 760 884, 240 973,000 $ (88,760) In an effort to resolve the problem, the company wants to prepare an income statement segmented by division. Accordingly, the Accounting Department provided the following information: Sales Variable expenses as a percentage of sales Traceable fixed expenses East $ 351,000 $262,000 56% Division Central $ 660,000 36% $ 335,000 West $ 580,000 47% $206,000 Required: 1. Prepare a contribution format income statement segmented by divisions. 2-a. The Marketing Department believes increasing the West Division's monthly advertising by $25,000 will increase that division's sales by 18%. Assuming these estimates are accurate, how much would the company's net operating income increase (decrease)…arrow_forward
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