Calculate the total Marginal Income and Net Profit/Loss if all the tables are sold. Use the marginal income ratio to calculate the break-even value. Calculate the new total Marginal Income and Net Profit/Loss, if an increase in advertising expense by R100 000 is expected to increase sales by 400 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.
(Use information attached)
Calculate the total Marginal Income and Net
Use the marginal income ratio to calculate the break-even value.
Calculate the new total Marginal Income and Net Profit/Loss, if an increase in advertising expense by R100 000 is expected to increase sales by 400 units.
How many units must be sold if the company wishes to earn a net profit of R298 920.
Based on the expected sales volume of 2 400 units, determine the sales price per unit (expressed
in rands and cents) that will enable the company to break even.
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