1. The XYZ Company earns an after tax profit of P2,400 on sales of P88,000. The average tax rate of the company is 25%. The only product in this operation sells for P20 of which P15 is in variable cost. You were asked to analyze the breakeven point of this project and its sensitivity to changes in cost levels and product price. The monthly fixed cost in this operation is: a. P18,000 b. Р84,000 c. P18,800 d. P84,800 e. None of these 2. Refer to question No. 1. The breakeven point in pesos is: а. Р3,600 b. P3,760 с. Р72,000 d. P75,200 e. None of these 3. Refer to question No. 1. With an increase in price of P5 per unit (assuming that volume is constant), the breakeven point would a. Not change b. Decrease by 37.5% с. Р70,000 d. Would decrease by 50% e. None of the above
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 XYZ Company earns an after tax profit of P2,400 on sales of P88,000. The average tax rate of the company is 25%. The only product in this operation sells for P20 of which P15 is in variable cost. You were asked to analyze the breakeven point of this project and its sensitivity to changes in cost levels and product price.
The monthly fixed cost in this operation is:
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