1.The coffee is sold in individual packets of 300 grams at RM 6.00 each. In developing the company's financial strategy for the year 2022, the company's president has accumulated all data on projected operation as follows: Expected sales volume Variable costs: 300,000 packets per annum Cost of coffee Cost of labour Selling and distribution Administrative expenses Other variable expenses RM 2.00 per packet RM 1.00 per packet RM 0.50 per packet RM 150,000 per annum RM 90,000 per annum Calculate the following: i. Break-even point in packets and sales value ii. Total net profit for the year iii. Contribution per sales ratio
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.
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