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 Degree of operating leverage: The Degree of operating leverage shows the relation between change in net operating income and change in sales. The formulas for degree of operating leverage are as follows: D e g r e e o f o p e r a t i n g l e v e r a g e = C o n t r i b u t i o n M a r g i n O p e r a t i n g i n c o m e C h a n g e i n o p e r a t i n g i n c o m e = C h a n g e s i n s a l e s × D e g r e e o f o p e r a t i n g l e v e r a g e To calculate: The effect of change in sales on profit

Question

Want to see the full answer?

Answer 1

Question

Chapter 6, Problem 11ME

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

Degree of operating leverage:

The Degree of operating leverage shows the relation between change in net operating income and change in sales. The formulas for degree of operating leverage are as follows:

Degree of operating leverage = Contribution MarginOperating income

Change in operating income = Changes in sales ×Degree of operating leverage

To calculate:

The effect of change in sales on profit

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

You see an estimate that hourly wage rates will increase by 6 percent next year. What other information do you need to determine the effect of this wage rate increase on the operating profit margin, and why do you need it?

Assume that next year, management wants the company to earn a minimum profit of $ 500,000. How many units will have to sold to meet this target profit figure?

Review the following Tableau dashboard, which was created using the data forecast for next year: Average Days-to-Sell 0 10 20 30 40 50 60 70 80 90 100 110 0% 10% The Slumber Store (TSS) O Beds O Mattresses O Pillows O Sheets Sheets Sales $80,000 Mattresses Sales $450,000 20% Pillows Sales $40,000 30% Average Gross Profit Percentage 40% 50% 60% Beds Sales $200,000 70% 80% +ableau 47 H 7. Identify the product line most likely to require a write-down when applying the lower of cost and market/net realizable value rule.