Break-Even Units, Contribution Margin Ratio, Margin of Safety Khumbu Company's projected profit for the coming year is as follows: Total Per Unit Sales $1,407,000 $28.00 Total variable cost 590,940 11.76 Contribution margin $ 816,060 $ 16.24 Total fixed cost 685,490 Operating income $ 130,570 Required: 1. Compute the break-even point in units. If required, round your answer to nearest whole value. units 2. How many units must be sold to earn a profit of $240,000? If required, round your answer to nearest whole value. units 3. Compute the contribution margin ratio. If required, round your answer to nearest whole number. % Using the rounded ratio from above, compute the additional profit that Khumbu would earn if sales were $160,000 more than expected.$ 4. For the projected level of sales, compute the margin of safety in units. units
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.
Break-Even Units, Contribution Margin Ratio, Margin of Safety
Khumbu Company's projected profit for the coming year is as follows:
| Total | Per Unit | |||
| Sales | $1,407,000 | $28.00 | ||
| Total variable cost | 590,940 | 11.76 | ||
| Contribution margin | $ 816,060 | $ 16.24 | ||
| Total fixed cost | 685,490 | |||
| Operating income | $ 130,570 |
Required:
1. Compute the break-even point in units. If required, round your answer to nearest whole value.
units
2. How many units must be sold to earn a profit of $240,000? If required, round your answer to nearest whole value.
units
3. Compute the contribution margin ratio. If required, round your answer to nearest whole number.
%
Using the rounded ratio from above, compute the additional profit that Khumbu would earn if sales were $160,000 more than expected.
$
4. For the projected level of sales, compute the margin of safety in units.
units
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