A company has fixed costs of $200,000 and produces one product with a selling price of $80.00 and a variable cost of $50.00 per unit. The maximum factory capacity is 30,000 units and it anticipates selling 20,000 units. a- Create the mathematical model that represents the profit. b-How much profit will they make at the present level of operation? c-How much tables must the company sells to break even? d-Determine the sales unit that the firm will have to reach if it is to make $20,000 profit per period. e-How much profit will they make if sales increase to the maximum that the factory can supply?
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.
A company has fixed costs of $200,000 and produces one product with a selling price of $80.00 and a variable cost of $50.00 per unit. The maximum factory capacity is 30,000 units and it anticipates selling 20,000 units.
a- Create the mathematical model that represents the profit.
b-How much profit will they make at the present level of operation?
c-How much tables must the company sells to break even?
d-Determine the sales unit that the firm will have to reach if it is to make $20,000 profit per period.
e-How much profit will they make if sales increase to the maximum that the factory can supply?
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