Data concerning Lancaster Corporation's single product appear below: Per Unit Percent of Sales Selling Price $200 100% Variable Expenses $60 30% Contribution Margin $140 70% Fixed expenses are $105,000 per month. The company is currently selling 1,000 units month. Management is considering using a new component that would increase the un variable cost by $44. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase 400 units. What should be the overall effect on the company's monthly net operating income of this change? A. Decrease of $38,400 B. Decrease of $5,600 C. Increase of $38,400 D. Increase of $5,600 2.
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.
Net operating income is a method used by real estate professionals to determine the exact value of revenue properties. Subtract the property's operating expenses from the revenue it generates to calculate NOI. In addition to rental income, a property may generate revenue from amenities such as parking structures, vending machines, as well as laundry facilities. Operating expenses cover the costs of running and maintaining the building, which include insurance premiums, legal fees, utilities, real estate taxes, repair costs, and janitorial fees.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
