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 Breakeven Point in units and Sales

Question

Want to see the full answer?

Answer 1

Question

Chapter 6, Problem 4.4GBP

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 calculate:

The Breakeven Point in units and Sales

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Cost Volume Profit (CVP) Relationships (Algo) You are provided with the following data. Unit sales Selling price per unit Variable expenses per unit Fixed expenses Target Profit 80,000 units $70 per unit $ 28 per unit $ 2,688,000 $ 1,610,000 Required: Compute the CM ratio and variable expense ratio. Compute the break-even. Compute the target profit. Compute the margin of safety with the original data. Compute the degree of operating leverage with the original data. Use the Degree of Operating Leverage to determine the new Net Operating Income if sales increase by: 16% 1. Use the Open Excel in New Tab button to launch this question. 2. When finished in Excel, use the Save and Return to Assignment button in the lower right to return to Connect.

A CVP graph such as the one shown below is a useful technique for showing relationships among an organization's costs, volume, and profits. 8. Required: Identify the numbered components in the CVP graph. Answer Number 1 Number 2 Number 3 Number 4 Number 5 Number 6 Number 7 Number 8 Number 9 State the effect of each of the following actions on the break-even point. Answer |The unit selling price is increased from $ 18 to $20. |Unit variable expenses are decreased from $12 to $10. |Fixed expenses are increased by $3,000 per period Two thousand more units are sold during the period than were budgeted Due to paying salespersons a commission rather than a flat salary, fixed expenses are reduced by $8,000 per period and unit variable expenses are increased by $3 Due to an increase in the cost of materials, both unit variable expenses and the selling price are increased by $2. Advertising costs are increased by $10,000 per period, resulting in a 10% increase in the number of units sold. Due…

Problem 3-17A (Algo) Determining the break-even point and preparing a contribution margin income statement LO 3-1 Ritchie Manufacturing Company makes a product that it sells for $150 per unit. The company incurs variable manufacturing costs of $76 per unit. Variable selling expenses are $14 per unit, annual fixed manufacturing costs are $352.000, and fixed selling and administrative costs are $266,000 per year. Required Determine the break-even point in units and dollars using each of the following approaches: a. Use the equation method. b. Use the contribution margin per unit approach. c. Use the contribution margin ratio approach. d. Prepare a contribution margin income statement for the break-even sales volume.