Copper Mountain Company has accumulated the following data over a six-month period: Indirect Indirect Labor Hours Labor Costs January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400 $ 6,000 February . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500 7,000 March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600 8,000 April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700 9,000 May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800 10,000 June . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900 11,000 Totaling 3,900 $51,000 Using the above data and plot the graph: 1. Plot the data points on the graph and draw a line by visual inspection, indicating the trend shown by the data points. 2. Determine the variable cost per unit and the total fixed cost from the information on the graph.
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.
Copper Mountain Company has accumulated the following data
over a six-month period:
Indirect Indirect
Labor Hours Labor Costs
January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400 $ 6,000
February . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500 7,000
March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600 8,000
April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 700 9,000
May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800 10,000
June . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900 11,000
Totaling 3,900 $51,000
Using the above data and plot the graph:
1. Plot the data points on the graph and draw a line by visual inspection, indicating the trend shown by the data points.
2. Determine the variable cost per unit and the total fixed cost from the information on the graph.
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