As a prospective owner of a club known as the Red Rose, you are interested in determining the volume of sales dollars necessary for the coming year to reach the break-even point. You have decided to break down the sales for the club into four categories, the first category being beer. Your estimate of the beer sales is that 36,000 drinks will be served. The selling price for each unit will average $1.50; the cost is $1.25. The second major category is meals, which you expect to be 12,000 units with an average price of $10.00 and a cost of $6.00. The third major category is desserts and wine, of which you also expect to sell 10,000 units, but with an average price of $2.75 per unit sold and a cost of $0.75 per unit. The final category is lunches and inexpensive sandwiches, which you expect to total 20,000 units at an average price of $6.00 with a food cost of $3.25. Your fixed cost (i.e., rent, utilities, and so on) is $1,800 per month plus $2,000 per month for entertainment. If Red Rose is open 30 days per month, then the expected number of meals that need to be sold each day = meals per day (round your response to one decimal place). Answer:
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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