Angel Company expects to sell 500,000 units in 2021 at P50 per unit. Variable manufacturing costs in producing the product amount to P20 per unit and fixed manufacturing costs amount to P12.50 per unit. A special order from Devil Company of 50,000 units were made at an offered price of P28.75 per unit. Regular sales from customers will not be affected from this transaction. However, in order to meet the specifications and requirements of Devil Company, overtime pay would be incurred amounting to P3.75 per unit. Determine the effect in income when the special order is accepted. Indicate whether increase or decrease O DE000 inc D 275 000 de. C 427 F00: 107 E 00 de
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.
Step by step
Solved in 2 steps with 1 images
