(c) What number of bottles will need to be sold to achieve a profit of £40,000 per Curl Tensions is a manufacturer of long lasting hair perming lotion which is sold at £20 Number of bottles which must be sold to break-even. (d) What level of sales will achieve a profit of £40,000 per annum? per bottle. The variable costs are £12 and fixed costs are £120,000 per year. Calculate: (a) Number of bottles which must be sold to break-even. (b) The value of sales at break-even. annum?
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.
![You are to following:
(c) The results for the of trading.
TUTORIAL TOPIC 2
1.
Calculate:
(b) The value of sales at break-even.
annum?
(d) What level of sales will achieve a profit of £40,000 per annun
Michael Morris decides to set up a business as a television retailer. Having
considered the matter carefully Michael comes to talk to you about this. He has
worked out most of the figures but he is uncertain about how profitable the business
will be. Michael wants to give himself plenty of time to sort things out and he is not
planning to start trading until the 1st July 2019
He has arranged to lease some purpose-built premises for five years from his aunt for
£25,000. The £25,000 will be paid the day he starts in business. The cost of this
payment will be written off over the five years of the lease on a straight line basis.
An initial stock of 50 televisions will be purchased. As the televisions are sold off thev
will be replaced by purchase of new stock.
It is estimated that sales on a cash basis Will take place at a rate of 35 per month
The sales price of each television is £300 with the purchase price being£150
depreciation of the property rental payment.
(a) The initial investment on 1 July 2019
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