2/Gabrick Company sells a product for $30 per unit. Variable costs are $20 per unit, and fixed costs are $2,500 per month. The company expects to sell 560 units in September. Prepare an income statement for September using the contribution margin format.
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.
![2/Gabrick Company sells a product for $30 per unit. Variable costs are $20 per unit, and
fixed costs are $2,500 per month. The company expects to sell 560 units in September.
Prepare an income statement for September using the contribution margin format.
3/Summer Company sells a product with a contribution margin ratio of 60%. Fixed costs
are $650 per month. What amount of sales (in dollars) must Summer Company have to
earn an operating income of $7,000? If each unit sells for $30, how many units must be
sold to achieve the desired operating income?
4/Compute the missing amounts for the following table.
Number of units
870 units
25,000 units
2,800 units
Sales price per unit
%24
1,000
24
100
%24
160
Variable costs per unit
600
60
80
Total fixed costs
79,200
80,000
64,000
Target profit
268,800
920,000
160,000
Calculate:
Contribution margin per unit
- 600
60
-80
Contribution margin ratio
Required units to achieve target profit
Required units to break even
Required sales dollars to break even](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6a141c28-d9cf-4f52-b113-0b23199e5c8a%2Fc391bf63-0839-49eb-a7ea-6a028f6de76f%2Fcdpobjl_processed.jpeg&w=3840&q=75)
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