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
Weighted Average Contribution Margin:
Weighted Average Contribution Margin is calculated for two products with the help of following formula:
To calculate:
The weighted Average contribution margin Ratio
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Managerial Accounting
- What is meant by a products contribution margin ratio and how is this ratio useful in planning business operations?arrow_forwardExplain how a contribution margin income statement can be used to determine profitability.arrow_forwardFollowing GAAP, the income statement issued to investors and creditors must OA. be prepared in the contribution margin format OB. be prepared using variable costing OC. show the value of contribution margin OD. be prepared in the traditional formatarrow_forward
- The number of units produced, or the number of units sold describes: a. Cost behavior b. Activity level c. Sales mix d. Contribution marginarrow_forwarda. Prepare a contribution margin by product report. Calculate the contribution margin ratio for each. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.arrow_forwardKSAs: Understand processes and concepts of cost-volume-profit. How to Calculate unit contribution margin, contribution margin, contribution margin ratio, and operating income?arrow_forward
- Which one of the following is defined, at any given sales volume, as the ratio of the total contribution margin to operating profit at that sales volume?arrow_forwardThe dollar amount of sales needed to achieve a target operating income is computed by dividingbtarget operating income by the contribution margin ratio True Falsearrow_forwardSummary for Cost Volume Profit Analysisarrow_forward
- Based on the image below for a manufacturing company, the correct statement is A. line b graphs total fixed costs B. point c represents the point at which the marginal contribution per unit increases C. line d graphs total costs D. area e (between lines b and d) represents the contribution marginarrow_forwardMatching Following are a number of key terms and concepts introduced in thechapter, along with a list of corresponding definitions. Match the appropriate letter for the key term or concept to each definition provided (items 1–12). Note thatnot all key terms and concepts will be used. Answers are provided at the end of thischapter.a. Cost–volume–profit analysisb. Cost formulac. Contribution margind. Contribution margin formatincome statemente. Linearity assumptionf. Contribution margin ratiog. Operating leverageh. Sales mixi. Break-even pointj. High–low techniquek. Managerial accountingl. Management processm. Variable costn. Fixed costo. Relevant rangep. Mixed (semivariable) costq. Cost behavior pattern____ 1. The proportion of total sales represented by various products or categoriesof products.____ 2. The difference between revenues and variable costs.____ 3. The concept that operating income changes proportionately more than revenues for any given change in revenues.____ 4. The…arrow_forwardWhen using a segmented income statement, what is the best number to look at to determine the effect of the elimination of a segment on the net operating income of the company as a whole? O Multiple Choice the product line's sales dollars the product line's contribution margin the product line's segment margin the product line's segment margin minus an allocated portion of common fixed expensesarrow_forward
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