. A ceramics manufacturer sold cups last year for P7.50 each. Variable costs of manufacturing were P2.25 per unit. The company needed to sell 20,000 cups to break even. Net income was P5,040. This year, the company expects the price per cup to be P9.00; variable manufacturing costs to increase 33.3%; and fixed costs to increase 10%. How many cups (rounded) does the company need to sell this year to breakeven? Topic: Cost Volume Profit Please explain each clearly and solve in good form. Format: 1. What is the nature of the problem? 2. What is being asked in the problem? 3. Solution (with clear explanation on how it happened and step by step solution) (also explain why did you multiply, add, minus or divide) (explain every detail and the concept) 4. Conclusion (explain how you can relate it in real situation)
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
1. A ceramics manufacturer sold cups last year for P7.50 each. Variable costs of manufacturing were P2.25 per unit. The company needed to sell 20,000 cups to break even. Net income was P5,040. This year, the company expects the price per cup to be P9.00; variable
Topic: Cost Volume Profit
Please explain each clearly and solve in good form.
Format:
1. What is the nature of the problem?
2. What is being asked in the problem?
3. Solution (with clear explanation on how it happened and step by step solution) (also explain why did you multiply, add, minus or divide) (explain every detail and the concept)
4. Conclusion (explain how you can relate it in real situation)
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