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
Weighted Average Contribution Margin:
Weighted Average Contribution Margin is calculated for two products with the help of following formula:
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 Breakeven units for each product
Want to see the full answer?
Check out a sample textbook solutionChapter 6 Solutions
Managerial Accounting
- Salvador Manufacturing builds and sells snowboards, skis and poles. The sales price and variable cost for each follows: Their sales mix is reflected in the ratio 7:3:2. If annual fixed costs shared by the three products are $196,200, how many units of each product will need to be sold in order for Salvador to break even?arrow_forwardPolaris Inc. manufactures two types of metal stampings for the automobile industry: door handles and trim kits. Fixed cost equals 146,000. Each door handle sells for 12 and has variable cost of 9; each trim kit sells for 8 and has variable cost of 5. Required: 1. What are the contribution margin per unit and the contribution margin ratio for door handles and for trim kits? 2. If Polaris sells 20,000 door handles and 40,000 trim kits, what is the operating income? 3. How many door handles and how many trim kits must be sold for Polaris to break even? 4. CONCEPTUAL CONNECTION Assume that Polaris has the opportunity to rearrange its plant to produce only trim kits. If this is done, fixed costs will decrease by 35,000, and 70,000 trim kits can be produced and sold. Is this a good idea? Explain.arrow_forwardManatoah Manufacturing produces 3 models of window air conditioners: model 101, model 201, and model 301. The sales price and variable costs for these three models are as follows: The current product mix is 4:3:2. The three models share total fixed costs of $430,000. Calculate the sales price per composite unit. What is the contribution margin per composite unit? Calculate Manatoahs break-even point in both dollars and units. Using an income statement format, prove that this is the break-even point.arrow_forward
- Lotts Company produces and sells one product. The selling price is 10, and the unit variable cost is 6. Total fixed cost is 10,000. Required: 1. Prepare a CVP graph with Units Sold as the horizontal axis and Dollars as the vertical axis. Label the break-even point on the horizontal axis. 2. Prepare CVP graphs for each of the following independent scenarios: (a) Fixed cost increases by 5,000, (b) Unit variable cost increases to 7, (c) Unit selling price increases to 12, and (d) Fixed cost increases by 5,000 and unit variable cost is 7.arrow_forwardBusy-Bee Baking Company produces a variety of breads. The average price of a loaf of bread is 1. Costs are as follows: Other data: Required: 1. Compute the break-even point in units using conventional analysis. 2. Compute the break-even point in units using activity-based analysis. 3. Suppose that Busy-Bee could reduce the setup cost by 100 per setup and could reduce the number of maintenance hours needed to 1,000. How many units must be sold to break even in this case? (Round answer up to whole units.)arrow_forwardManufacturing builds and sells switch harnesses for glove boxes. The sales price and variable cost for each follows: Their sales mix is reflected in the ratio 4:4:1. What is the overall unit contribution margin for JJ Manufacturing with their current product mix?arrow_forward
- Manufacturing builds and sells switch harnesses for glove boxes. The sales price and variable cost for each follows: Their sales mix is reflected in the ratio 4:4:1. If annual fixed costs shared by the three products are $1 8840 how many units of each product will need to be sold in order forJj to break even?arrow_forwardProduct Cost Method of Product Costing MyPhone, Inc. uses the product cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 4,950 cell phones are as follows: Variable costs per unit: Fixed costs: Direct materials $70 Factory overhead $199,700 Direct labor 35 Selling and administrative expenses 69,300 Factory overhead 27 Selling and administrative expenses 21 Total variable cost per unit $153 MyPhone desires a profit equal to a 15% rate of return on invested assets of $598,500. a. Determine the amount of desired profit from the production and sale of 4,950 cell phones. b. Determine the product cost per unit for the production of 4,950 of cell phones. Round your answer to the nearest whole dollar. per unit c. Determine the product cost markup percentage for cell phones. Round your answer to two decimal places. d. Determine the selling price of cell phones. Round your answers to the nearest whole dollar. Total Cost per unit Markup per unit…arrow_forwardProduct Cost Method of Product Costing MyPhone, Inc. uses the product cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 4,950 cell phones are as follows: Variable costs per unit: Fixed costs: Direct materials $70 Factory overhead $199,700 Direct labor 35 Selling and administrative expenses 69,300 Factory overhead 27 Selling and administrative expenses 21 Total variable cost per unit $153 MyPhone desires a profit equal to a 15% rate of return on invested assets of $598,500. a. Determine the amount of desired profit from the production and sale of 4,950 cell phones. $ 89,775 V b. Determine the product cost per unit for the production of 4,950 of cell phones. Round your answer to the nearest whole dollar. $ 853,100 X per unit c. Determine the product cost markup percentage for cell phones. Round your answer to two decimal places. 30.83 d. Determine the selling price of cell phones. Round your answers to the nearest whole dollar. Total…arrow_forward
- Strategic cost management NUBD Co. sells two products, Avon and Bona. The company sells these products at the rate of 2 units of Avon and 3 units of Bona. The contribution margin per unit of Avon is P4 and of Bona is P2. The total fixed costs is P420,000. The selling price of Avon is P10 and Bona is P8. Compute for the following: a. Break-even point in units. b. Break-even point in sales c. Break-even point in pesos for Avon d. Break-even point in pesos for Bona.arrow_forwardProduct Cost Concept of Product Costing MyPhone Inc. uses the product cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 5,310 cellular phones are as follows: Variable costs: Fixed costs: Direct materials $67 per unit Factory overhead $198,000 Direct labor 36 Selling and administrative expenses 68,600 Factory overhead 22 Selling and administrative expenses 23 Total $148 per unit MyPhone wants a profit equal to a 15% rate of return on invested assets of $602,000. a. Determine the amount of desired profit from the production and sale of 5,310 cellular phones.$fill in the blank 1 b. Determine the product cost and the cost amount per unit for the production of 5,310 cellular phones. If required, round your answer to nearest dollar.$fill in the blank 2 per unit c. Determine the product cost markup percentage (rounded to two decimal places) for cellular phones.fill in…arrow_forwardProduct Cost Method of Product Costing Voice Com, Inc. uses the product cost method of applying the cost-plus approach to product pricing. The costs of producing and selling 4,580 cell phones are as follows: Variable costs per unit: Fixed costs: Direct materials $79 Factory overhead $201,200 Direct labor 31 Selling and administrative expenses 68,500 Factory overhead 24 Selling and administrative expenses 19 Total variable cost per unit $153 Voice Com desires a profit equal to a 16% rate of return on invested assets of $601,800. a. Determine the amount of desired profit from the production and sale of 4,580 cell phones. b. Determine the product cost per unit for the production of 4,580 of cell phones. Round your answer to the nearest whole dollar. per unit c. Determine the product cost markup percentage for cell phones. Round your answer to two decimal places. d. Determine the selling price of cell phones. Round your answers to the nearest whole dollar. Total Cost per unit Markup per…arrow_forward
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegeManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning