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 prepare: The Contribution Margin Income Statement

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Chapter 6, Problem 2.4GBP

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 prepare:

The Contribution Margin Income Statement

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Joyce Murphy runs a courier service in downtown Seattle. She charges clients $0.62 per mile driven. Joyce has determined that if she drives 2,450 miles in a month, her total operating cost is $725. If she drives 3,550 miles in a month, her total operating cost is $857. Required: 1. Using the high-low method, determine Joyce's variable and fixed operating cost components. 2. Complete the contribution margin income statement for Joyce's service assuming she drove 1,600 miles last month. (Assume this falls within the relevant range of operations).

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