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
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:
To calculate:
The Change in profits
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Managerial Accounting
- a. Given the following graphs, calculate the total fixed costs, variable costs per unit, andsales price for Firm A. Firm B’s fixed costs are $120,000, its variable costs per unit are$4, and its sales price is $8 per unit.b. Which firm has the higher operating leverage at any given level of sales? Explain.c. At what sales level, in units, do both firms earn the same operating profit?arrow_forward) From the following information relating to quick standards Ltd., you are required to find out (i) C/M ratio (ii) break-even point (iii) calculate the volume of sales to earn profit of ` 6,000/- Total Fixed Costs ` 4,500 Total Variable Cost ` 7,500 Total Sales ` 15,000arrow_forwardPROBLEM SOLVING: (show step by step solution) Break-even and target profits. Analysis of the operations of FAST Company shows the fixed costs to be P200,000 and the variable costs to be P8 per unit. Selling price is P16 per unit. Derive the break-even point expressed in units. How many units must the firm sell to earn a profit of P280,000? What would profits be if revenue from sales were P2,000,000?arrow_forward
- Suppose a ceiling fan manufacturer has the total cost function C(x) = 35x + 1200 and the total revenue function R(x) = 65x. (a) What is the equation of the profit function P(x) for this commodity? P(x) = (b) What is the profit on 20 units? P(20) = Interpret your result. The total costs are less than the revenue. The total costs are more than the revenue. The total costs are exactly the same as the revenue. (c) How many fans must be sold to avoid losing money? fansarrow_forwardCVP Analysis using a chart: The cost-volume-profit chart for Byron Manufacturing is shown. Use the graph to complete the sentences given below. SALES AND COSTS (Dollars) 20000 Sales 15000 Total Costs 10000 5000 100 200 300 400 500 600 700 800 900 1000 UNITS OF SALES Byron Manufacturing reaches its break-even level of activity when it sells 500 -v units and generates $12,000 v in revenue, because at this level of activity the firm's revenue equals -v its total cost. In addition, you can determine from the chart that Byron Manufacturing's fixed costs are $6,000 -v and its price per unit is $24.00 V and variable cost per unit is $12.00 If fixed costs increase, what will happen to the break-even point? The break-even point will increase. If the price per unit decreases, what will happen to the break-even point? The break-even point will increase.arrow_forwardA 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…arrow_forward
- Faldo Company produces a single product. The projected income statement for the coming year, based on sales of 200,000 units, is as follows: Required: 1. Compute the unit contribution margin and the units that must be sold to break even. Suppose that 30,000 units are sold above the break-even point. What is the profit? 2. Compute the contribution margin ratio and the break-even point in dollars. Suppose that revenues are 200,000 greater than expected. What would the total profit be? 3. Compute the margin of safety in sales revenue. 4. Compute the operating leverage. Compute the new profit level if sales are 20 percent higher than expected. 5. How many units must be sold to earn a profit equal to 10 percent of sales? 6. Assume the income tax rate is 40 percent. How many units must be sold to earn an after-tax profit of 180,000?arrow_forwardBloom Company management predicts that it will incur fixed costs of $267,000 and earn pretax income of $353,100 in the next period. Its expected contribution margin ratio is 53%. Required: 1. Compute the amount of total dollar sales. 2. Compute the amount of total variable costs. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the amount of total dollar sales. Dollar Sales Choose Numerator: / Choose Denominator: = 1 of 5 F8 Next > F9 18 F10 F11 F12 Fn Lock 3:25 PM 6/16/2022 Insertarrow_forwardBloom Company predicts it will incur fixed costs of $255,000 and earn income of $427,500 in the next period. Its expected contribution margin ratio is 65%. 1. Compute the amount of expected total dollar sales. 2. Compute the amount of expected total variable costs. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the amount of expected total dollar sales. Dollar Sales Numerator: Denominator: Total Dollar Sales %3D Total dollar sales %3D Required 1 Required 2 >arrow_forward
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