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 Degree of operating leverage: The Degree of operating leverage shows the relation between change in net operating income and change in sales. The formulas for degree of operating leverage are as follows: D e g r e e o f o p e r a t i n g l e v e r a g e = C o n t r i b u t i o n M a r g i n O p e r a t i n g i n c o m e C h a n g e i n o p e r a t i n g i n c o m e = C h a n g e s i n s a l e s × D e g r e e o f o p e r a t i n g l e v e r a g e To calculate: The Change in profits

Question

Want to see the full answer?

Answer 1

Question

Chapter 6, Problem 4.8GAP

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

Degree of operating leverage:

The Degree of operating leverage shows the relation between change in net operating income and change in sales. The formulas for degree of operating leverage are as follows:

Degree of operating leverage = Contribution MarginOperating income

Change in operating income = Changes in sales ×Degree of operating leverage

To calculate:

The Change in profits

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Profit Functions A company has a fixed cost of $26,000 and a production cost of $5 for each unit it manufactures. A unit sells for $10. Find the following functions (in dollars). (a) What is the cost function? C(x) = (b) What is the revenue function? R(x) = (c) What is the profit function? P(x) = (d) Compute the profit (loss), in dollars, corresponding to the following production levels. P(5,500) =$ P(8,800) =$ P(12,100) =$

Megacorp and Gadgetron are two competing gadget manufacturers. Information about the price and cost structures of the two manufacturers are given below. Megacorp Gadgetron Selling price per unit 160 160 Variable cost per unit 110 80 Fixed cost per month 46,000 100,000 Required: Calculate the sales volume that will result in Megacorp and Gadgetron having the same operating profit. Prepare a profit-volume graph by plotting profit as a function of the sales volume.Hint: Identify the point where sales volume is zero (i.e., fixed cost on y-intercept) and the break-even point (i.e., x-intercept where profit is zero) and connect the dots.

Use the following information about Rat Race Home Security, Inc. to answer the questions: Average selling price per unit $324. Variable cost per unit $187 Units sold 449 Fixed costs $8,589 Interest expense 17,204 Based on the data above, what will be the resulting percentage change in earnings per share of Rat Race Home Security, Inc. if they expect operating profit to change 4.2 percent? (You should calculate the degree of financial leverage first). (Write the percentage sign in the "units" box).