Concept explainers
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
To calculate:
The Contribution Margin per unit and Contribution margin ratio
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Managerial Accounting
- Hawk Homes, Inc., makes one type of birdhouse that it sells for $29.40 each. Its variable cost is $13.20 per house, and its fixed costs total $14,013.00 per year. Hawk currently has the capacity to produce up to 2,700 birdhouses per year, so its relevant range is 0 to 2,700 houses. Required:1. Prepare a contribution margin income statement for Hawk assuming it sells 1,280 birdhouses this year. 2. Without any calculations, determine Hawk’s total contribution margin if the company breaks even. 3. Calculate Hawk’s contribution margin per unit and its contribution margin ratio. 4. Calculate Hawk’s break-even point in number of units and in sales revenue. 5. Suppose Hawk wants to earn $25,000 this year. Determine how many birdhouses it must sell to generate this amount of profit.arrow_forwardHawk Homes, Ic., makes one type of birdhouse that it sells for $30.00 each. Its variable cost is $13.50 per house, and its fixed costs total $14,239.50 per year. Hawk currently has the capacity to produce up to 2,800 birdhouses per year, so its relevant range is 0 to 2,800 houses. Required: 1. Prepare a contribution margin income statement for Hawk assuming it sells 1,110 birdhouses this year. 2. Without ancaleuletione, detonmine llawks total contribution morgin if the company breake 3. Сн 4. Calculate Hawk's break-even point in number of units and in sales revenue. 5. Suppose Hawk wants to earn $21,000 this year. Determine how many birdhouses it must sell to generate this amount of profit. O margm per umt Omarginatio. Answer is not complete. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Prepare a contribution margin income statement for Hawk assuming it sells 1,110 birdhouses this year. (Enter your answers…arrow_forwardHawk Homes, Ic., makes one type of birdhouse that it sells for $30.00 each. Its variable cost is $13.50 per house, and its fixed costs total $14,239.50 per year. Hawk currently has the capacity to produce up to 2,800 birdhouses per year, so its relevant range is 0 to 2,800 houses. Required: 1. Prepare a contribution margin income statement for Hawk assuming it sells 1,110 birdhouses this year. 2. Without any calculations, determine Hawk's total contribution margin if the company breaks even. 3. Calculate Hawk's contribution margin per unit and its contribution margin ratio. 4. Calculate Hawk's break-even point in number of units and in sales revenue. 5. Suppose Hawk wants to earn $21,000 this year. Determine how many birdhouses it must sell to generate this amount of profit. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Prepare a contribution margin income statement for Hawk assuming it sells 1,110 birdhouses…arrow_forward
- Peppy Quadcopters plans to sell a standard quadcopter (toy drone) for $70 and a deluxe quadcopter for $90. Peppy purchases the standard quadcopter for $60 and the deluxe quadcopter for $65. Management expects to sell two deluxe quadcopters for every three standard quadcopters. The company's monthly fixed expenses are $16,000. How many of each type of quadcopter must Peppy sell monthly to breakeven? To earn $12,000?arrow_forwardTotal fixed cost of a product is IDR 10,000,000 and variable cost is IDR 50,000 per unit. The sale price is IDR.75,000 per unit . How much products should be produced to get BEP? Prove your answer and make a graphic. ..And If the company need profit IDR 10,000,000. How much is the sales price? Prove your answer.arrow_forwardContribution Margin Ratio, Break-Even Sales Revenue, Sales Revenue for Target Profit Schylar Pharmaceuticals, Inc., plans to sell 120,000 units of antibiotic at an average price of $25 each in the coming year. Total variable costs equal $960,000. Total fixed costs equal $7,200,000. Required: 1. What is the contribution margin per unit? Round your answer to the nearest cent. What is the contribution margin ratio? Round your answer to two decimal places. (Express as a decimal-based answer rather than a whole percent amount.) fill in the blank 2 2. Calculate the sales revenue needed to break even. Round your answer to the nearest dollar. 3. Calculate the sales revenue needed to achieve a target profit of $205,000. Round your answer to the nearest dollar. 4. What if the average price per unit increased to $26.50? Recalculate the following: a. Contribution margin per unit. Round your answer to the nearest cent. b. Contribution margin ratio. Enter your answer as a decimal value (not a…arrow_forward
- Contribution Margin Ratio, Break-Even Sales Revenue, Sales Revenue for Target Profit Schylar Pharmaceuticals, Inc., plans to sell 100,000 units of antibiotic at an average price of $15 each in the coming year. Total variable costs equal $480,000. Total fixed costs equal $8,400,000. 4. What if the average price per unit increased to $16.50? Recalculate the following: a. Contribution margin per unit. Round your answer to the nearest cent. b. Contribution margin ratio. Enter your answer as a decimal value (not a percentage), rounded to four decimal places.fill in the blank 6 c. Sales revenue needed to break even. In your computations, use your rounded answer from part (4-b) above for the contribution margin ratio, and round your final answer to the nearest dollar. d. Sales revenue needed to achieve a target profit of $260,000. In your computations, use your rounded answer from part (4-b) above for the contribution margin ratio, and round your final answer to the nearest dollar.arrow_forwardCalculating breakeven point in units, contribution margin ratio given Ocean Company sells a product with a contribution margin ratio of 80%. Fixed costs are $2,800 per month. What amount of sales (in dollars) must Ocean Company have to break even? If each unit sells for $30, how many units must be sold to break even?arrow_forwardContribution Margin Ratio, Break-Even Sales Revenue, Sales Revenue for Target Profit Schylar Pharmaceuticals, Inc., plans to sell 110,000 units of antibiotic at an average price of $18 each in the coming year. Total variable costs equal $712,800. Total fixed costs equal $7,300,000. Required: 1. What is the contribution margin per unit? Round your answer to the nearest cent. What is the contribution margin ratio? Round your answer to two decimal places. (Express as a decimal-based answer rather than a whole percent amount.) 2. Calculate the sales revenue needed to break even. Round your answer to the nearest dollar. 3. Calculate the sales revenue needed to achieve a target profit of $215,000. Round your answer to the nearest dollar. 4. What if the average price per unit increased to $19.50? Recalculate the following: a. Contribution margin per unit. Round your answer to the nearest cent. b. Contribution margin ratio. Enter your answer as a decimal value (not a percentage), rounded to…arrow_forward
- 2. Sooner Industries charges a price of $82 and has fixed cost of $325,000. Next year, Sooner expects to sell 14,800 units and make operating income of $187,000. What is the variable cost per unit? What is the contribution margin ratio? Note: Round your variable cost per unit answer to the nearest cent. Enter the contribution margin ratio as a percentage, rounded to two decimal places. Line Item Description Answer Variable cost per unit $fill in the blank 2 per unit Contribution margin ratio fill in the blank 3 %arrow_forwardMadlock, Inc. sells a product with a contribution margin of $10 per unit. Fixed costs are $1,800 per month. How many units must Madlock sell to break even? Begin by showing the formula and then entering the amounts to calculate the units Madlock must sell to break even. (Abbreviation used: CM = contribution margin. Complete all input fields. Enter a "0" for items with a zero value.) Target profit ) = Fixed costs ▼ + + HH CM per unit TOD Carmen Required sales in unitsarrow_forwardBest Windows is a small company that installs windows. Its cost structure is as follows: Selling price from each window installation Variable cost of each window installation Annual fixed costs $ $ $ 160,000 Use (a) the equation method and (b) the contribution method to calculate operating income if Best installs 4,000 windows. Use (a) the Equation method to calculate operating income if Best installs 4,000 windows. Begin by determining the formula to calculate the operating income using the equation method. Then, calculate the operating income. (Abbreviation used: FC = Fixed costs, SP = Selling price, VCU = Variable cost per unit, Q = Quantity of units sold.) X X )-( )-( X X 700 600 X = Operating income = Next, use (b) the contribution method to calculate operating income if Best installs 4,000 windows. Begin by determining the formula to calculate the operating income using the contribution method. Then, calculate the operating income. = Operating incomearrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning