ces to a wide range of clients. Common services range from testing food for illegal additives to providing Labs Ltd analysis on items used to commit crimes to assist law enforcement officers. The 2021 annual audit is nearing completion and as an audit senior on the audit engagement you have reported to the engagement partner that Labs Ltd is having some financial difficulties. Income has fallen due to the adverse effect of more than one high-profile court case, where Labs Ltd‘s services to assist the prosecution were found to be erraneous. Not only did this provide adverse publicity for Labs Ltd, but a number of clients withdrew their contracts. A senior employee then left Labs Ltd, stating lack of investment in new Labs analys machines was i
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.
Labs Ltd provides scientific services to a wide range of clients. Common services range from testing food for illegal additives to providing Labs Ltd analysis on items used to commit crimes to assist law enforcement officers. The 2021 annual audit is nearing completion and as an audit senior on the audit engagement you have reported to the engagement partner that Labs Ltd is having some financial difficulties.
Income has fallen due to the adverse effect of more than one high-profile court case, where Labs Ltd‘s services to assist the prosecution were found to be erraneous. Not only did this provide adverse publicity for Labs Ltd, but a number of clients withdrew their contracts. A senior employee then left Labs Ltd, stating lack of investment in new Labs analys machines was increasing the risk of incorrect information being provided by the company.
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