Consider the info provided below as well as the financial statement and answer the questions that follows Pearson & Litt is a manufacturing company in the Eastern Cape. Their factory manufactures glass wine bottles for the Blue Valley Beer Co
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.
Consider the info provided below as well as the financial statement and answer the questions that follows
Pearson & Litt is a manufacturing company in the Eastern Cape. Their factory manufactures glass wine bottles for the Blue Valley Beer Co.
2019 2020
Sales price per unit R15 R19
Variable cost per unit R6 R7
Fixed cost (FC) per annum R650 000 R 855 500
Fixed cost per unit R 3 R 4
Current assets R 450 600 R 560 700
Current liabilities R 510 000 R 780 000
Retained profit R 21 809 R 17 600
Net Sales R 2 900 320 R 3 100 100
Cost of sales R 390 000 R 475 000
- Calculate the break‐even point for Pearson & Litt for 2019 and 2020.
- Compare the results of the 2019 and 2020 break‐even point and explain the difference.
The
Q.5.2.1 Calculate the current ratio for Pearson & Litt for 2019.
Q.5.2.2 Explain the results of the current‐test ratio.
The gross profit margin indicates how profitable sales have been.
- Q.5.3.1 Calculate the gross profit margin for Pearson & Litt for 2020.
- Q.5.3.2 Explain the results of the gross profit margin calculation.
Financial planning forms part of the strategic planning of a firm
Q.1 Differenziate between traditional budgeting and zero-base budgeting
Learn your way
Includes step-by-step video
Step by step
Solved in 4 steps
