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 required units sales for the desired profit
Want to see the full answer?
Check out a sample textbook solutionChapter 6 Solutions
Managerial Accounting
- Calculate the number of helmets Head-First must sell to earn operating income of $81,900. _____________helmets Refer to the list below for the exact wording of text items within your income statement. Amount Descriptions Operating income Operating loss Sales Total contribution margin Total fixed cost Total variable cost Units to Earn Target Income Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. Unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable selling expense). Total fixed cost equals $49,500 (includes fixed factory overhead and fixed selling and administrative expense). Required: 1. Calculate the number of helmets Head-First must sell to earn operating income of $81,900. 2. Check your answer by preparing a contribution margin income statement based on the number of units calculatedarrow_forwardA company would like to determine various costs and points to aid them in deciding whether to expand or not. If you are given the following information, compute the required amounts and / or figures.Selling price / unit = P100 Variable cost / unit = P70Annual fixed cost = P500,000 Compute 5. Sales in units to earn a profit of 10% of sales.arrow_forwardBernard Windows is a small company that installs windows. Its cost structure is as follows: Selling price from each window installation $500 Variable cost of each window installation $400 Annual fixed costs $150,000 Use (a) the Equation method and (b) the contribution method to calculate operating income if Bernard installs 2,000 windows. Use (a) the Equation method to calculate operating income if Bernard installs 2,000 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.) ( × ) - ( × ) - = Operating income ( × ) - ( × ) - =arrow_forward
- Current operating income for Bay Area Cycles Company is $26,000. Selling price per unit is $100, the contribution margin ratio is 25%, and fixed expense is $104,000. Required: 1. Calculate Bay Area Cycle's per unit variable expense and contribution margin. How many units are currently being sold? 2. How many additional unit sales would be necessary to achieve operating income of $65,000? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Calculate Bay Area Cycle's per unit variable expense and contribution margin. How many units are currently being sold? Revenue Variable expense Contribution margin Fixed expense Operating income $ Per Unit 100.00 Volumearrow_forwardSteps Inc sells step aerobic class equipment. The equipment sells for $15 / unit. The variable cost is $10 per unit and fixed costs are $1,750,000. What are number of units the company must sell if the company wants to achieve a target profit of $400,000arrow_forwardSabrina Inc. sells table for $110. The unit variable cost per table is $85. Fixed costs total $475,000. Required: a What is the contribution margin per table? b. What is the breakeven point in table? C. How many table must be sold to earn a pretax income of $450 000? d. What is the margin of safety, assuming 33 000 tires are sold?arrow_forward
- Cullumber Company makes three models of tasers. Information on the three products is given below. Sales Variable expenses Contribution margin Fixed expenses Net income (a) Net income $ (b) Shocker Net Income Tingler $300,000 $500,000 Tingler Net Income $ Total Net Income (c) Why or why not? Compute current net income for Cullumber Company. ta Net income would 151,400 148,600 $ 119,400 S $29,200 Fixed expenses consist of $298,000 of common costs allocated to the three products based on relative sales, as well as direct fixed expenses unique to each model of $30,000 (Tingler), $80,800 (Shocker), and $34,300 (Stunner). The common costs will be incurred regardless of how many models are produced. The direct fixed expenses would be eliminated if that model is phased out. James Watt, an executive with the company, feels the Stunner line should be discontinued to increase the company's net income. Shocker 197,000 303,000 229,800 $73,200 Compute net income by product line and in total for…arrow_forwardConsider the following information for a given business. Sale revenue =GHS40,000 VC per unit =GHS20 Activity level =1,000 to break even Required: 1. Determine the TFC 2. Express the contribution as a percentage of sale. 3. The company plans to sale 1,500 unit in the next period. What will be the percentage margin of safety (MoS) 4. What margin should the business employ for planning purposes? 5. What total profit should the business expect in order to achieve it's planned sales?arrow_forwardTiktok Company distributes a lightweight lawn chair that sell for P150 per unit. Variable costs are P60 per unit, and fixed costs total P1,800,000 annually. Required: 1. What is the product's CM Ratio?2. Use the CM ratio to determine the break-even point in sales pesos.arrow_forward
- Total 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_forwardWindows is a small company that installs windows. Its cost structure is as follows: Selling price from each window installation $500 Variable cost of each window installation $400 Annual fixed costs $150,000 Use (a) the Equation method and (b) the contribution method to calculate operating income if Bernard installs 2,000 windows. Use (a) the Equation method to calculate operating income if Bernard installs 2,000 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.) ( SP × Q ) - ( VCU × Q ) - FC = Operating income ( $500 × 2,000 ) - ( $400 × 2,000 ) - $150,000 = $50,000 Next, use (b) the contribution method to calculate operating income if Bernard…arrow_forwardConsider the following information available for Barium Company: Total fixed costs $1,440,000 Contribution margin ratio 0.30 Based on the given information, calculate the sales revenue needed to achieve a target profit of $360,000. a.$6,250,000 b.$5,750,000 c.$5,000,000 d.$6,000,000arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education