The following data relate to product PQ Selling price $215 per unit Variable cost $120 per unit Fixed costs are $150,000 Requirement: a) Calculate the number of units that must be made and sold in order to break even b) Calculate the level of activity to generate a profit of $140,000 c) The company budgets to sell 4000 units of product PQ.Calcualte the margin of Safety d) Calculate the contribution/Sales ratio for Product PQ e) Calcualte the break-even point again, this time expressed in
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
The following data relate to product PQ
Selling price $215 per unit
Variable cost $120 per unit
Fixed costs are $150,000
Requirement:
a) Calculate the number of units that must be made and sold in order to break even
b) Calculate the level of activity to generate a profit of $140,000
c) The company budgets to sell 4000 units of product PQ.Calcualte the margin of Safety
d) Calculate the contribution/Sales ratio for Product PQ
e) Calcualte the break-even point again, this time expressed in terms of Sales revenue.
f) Calculate the sales revenue that is required to generate a profit of $40000.
Nb: this please to answer all the question from a-f separately
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