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 $ is calculated with the help of following formula: Breakeven point ( units ) = Total Fixed Costs (Sales Price Per unit -Variable Cost per unit) To calculate: The required sales units to earn the desired Profit

Question

Want to see the full answer?

Answer 1

Question

Chapter 6, Problem 2.3GBP

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 $ is calculated with the help of following formula:

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

To calculate:

The required sales units to earn the desired Profit

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

CONTRIBUTION MARGIN You rent a retail stall in the mall for $300 a month and use it to sell T-shirts with funny captions of the world we live in. You sell each T-shirt for $25, and your cost for each shirt is $15. You hired a salesperson and pays $400 salary per month plus a commission of $0.50 for every T-shirt sold. Create a contribution margin income statement for two different months: in one month, assume 100 T-shirts are sold, and in the other month, assume 200 T-shirts are sold.

a. What impact would accepting this special order have on operating profit? b. From an operating profit perspective for April, should Maria accept the order?

Liberty Coffee sells three small coffees for every large coffee. A small coffee sells for $3.00, with a variable expense of $1.50. A large coffee sells for $5.00, with a variable expense of $2.50.Requirements1. Determine the coffee shop’s monthly breakeven point in the numbers of small coffees and large coffees. Prove your answer by preparing a summary contribution margin income statement at the breakeven level of sales. Show only two categories of expenses: variable and fixed.2. Compute the coffee shop’s margin of safety in dollars.3. Use the coffee shop’s operating leverage factor (using the July contribution margin income statement) to determine its new operating income if sales volume increases 12%. Prove your results using the contribution margin income statement format. Assume that sales mix remains unchanged.