Camille Company operates a chain of retail paint stores. Although the paint is sold under the Camille label, it is purchased from an independent manufacturer. The president is studying the possibility of opening another store. His estimates of monthly costs for the proposed location are: Fixed costs: P31,600 Occupancy costs Salaries 36,400 Others 12,000 Variable costs (including cost of paint) P70 per gallon
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.
![Although Camille stores sell different types of paint, monthly sales
revenue consistently averages P100 per gallon sold.
REQUIRED:
1. Compute the contribution margin ratio and the break-even point in peso
sales and in gallons sold for the proposed store.
2. Draw a monthly break-even chart for the proposed store, assuming 3,000
gallons per month as the maximum sales potential.
3. The president thinks that the proposed store will sell between 2,200 and
2,600 gallons of paint per month. Compute the amount of operating income
that would be earned per month at each of these sales volumes.
BREAK-EVEN CHART
PSos in inteal ut lo,00)
23
20
(7
16
15
14
13
(2
9
41
3
0I 2 3 4 s 7891011 12 13 14 15 1U 17 1819 20 2l 22 23
Uni ts In interva)
of l,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcf1acaf7-7a6b-47a0-aa27-2a02525bc2aa%2F2afafc80-1787-4767-a41e-1cc22650eb9c%2F11y1ycw_processed.jpeg&w=3840&q=75)
![Exercise 4-22
Camille Company operates a chain of retail paint stores. Although the
paint is sold under the Camille label, it is purchased from an independent
manufacturer. The president is studying the possibility of opening another
store. His estimates of monthly costs for the proposed location are:
Fixed costs:
Occupancy costs
Salaries
P31,600
36,400
Others
12,000
Tariable costs (including cost of paint)
P70 per gallon](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcf1acaf7-7a6b-47a0-aa27-2a02525bc2aa%2F2afafc80-1787-4767-a41e-1cc22650eb9c%2Fold85jq_processed.jpeg&w=3840&q=75)
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