A company has a margin of safety of 25%, a contribution margin ratio of 30%, and sales of $1,000,000. a. What was the break-even point? $fill in the blank 1 b. What was the operating income? $fill in the blank 2 c. If neither the relationship between variable costs and sales nor the amount of fixed costs is expected to change in the next year, how much additional operating income can be earned by increasing sales by $110,000? $fill in the blank 3
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.
1.
A company has a margin of safety of 25%, a contribution margin ratio of 30%, and sales of $1,000,000.
a. What was the break-even point?
$fill in the blank 1
b. What was the operating income?
$fill in the blank 2
c. If neither the relationship between variable costs and sales nor the amount of fixed costs is expected to change in the next year, how much additional operating income can be earned by increasing sales by $110,000?
$fill in the blank 3
2.
Lauder Company had fixed costs of $282,500, variable costs of $645,000, and actual sales amounted to $1,100,000. If the company has a break-even point at $750,000 in sales revenue.
a. Determine the margin of safety expressed in dollars.
$fill in the blank 1
b. Determine the margin of safety expressed as a percentage of sales. Enter the percentage amount as a whole number (for example, enter 10% as "10").
fill in the blank 2 %
c. Determine the contribution margin ratio.
fill in the blank 3 %
d. Determine the operating income.
$fill in the blank 4
3.
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Tops Company sells Products D and E and has made the following estimates for the coming year:
Product Unit Selling Price Unit Variable Cost Sale Mix D $30 $24 60% E 70 56 40 Fixed costs are estimated at $202,400.
a. Determine the estimated sales in units of the overall product necessary to reach the break-even point for the coming year. Round intermediate calculations to the nearest cent.
fill in the blank 1 unitsb. Determine the estimated number of units of each product necessary to be sold to reach the break-even point for the coming year.
Product D fill in the blank 2 units Product E fill in the blank 3 units c. Determine the estimated sales in units of the overall product necessary to realize an operating income of $119,600 for the coming year.
fill in the blank 4 units4.For the past year, LaPrade Company had fixed costs of $70,000, a unit variable costs of $32, and a unit selling price of $40. For the coming year, no changes are expected in revenues and costs except that property taxes are expected to increase by $10,000.
a. Determine the break-even sales (in units) for the past year.
fill in the blank 1 unitsb. Determine the break-even sales (in units) for the coming year.
fill in the blank 2 units
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