E21-20 Setting sales prices Learr The Walls Candy Company manufactures candy that is sold to food distributors. The company produces at full capacity for six months each year to meet peak de- mand during the "candy season" from Halloween through Valentine's Day. During the other six months of the year, the manufacturing facility operates at 75% of ca- pacity. The Walls Candy Company provides the following data for the year: Cases of candy produced and sold 1,000,000 cases Sales price $ 25.00 per case Variable manufacturing costs 7.00 per case Fixed manufacturing costs 6,500,000 per year Variable selling and administrative costs 2.00 per case Fixed selling and administrative costs 3,200,000 per year The Walls Candy Company receives an offer to produce 5,000 cases of candy for special event. This is a one-time opportunity during a period when the company has excess capacity. What is the minimum selling price The Walls Candy Company should accept for the order? Explain why. a Le E21-21 Analyzing profitability Spears Company sells two products, Alpha and Omega, with a sales mix of 40% per unit of $10, and To
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.
What is the minimum selling price The Walls candy company should accept for the order? Explain why.
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