Given the cost and volume information below: Volume Cost 1 unit $ 15 10 units 150 100 units 1500 What type of a cost is given? a. fixed cost b. variable cost c. step cost d. mixed cost e. rent cost. (2 marks) 2. The Cape Cod Cotton Candy Company had the following information available regarding last year’s operations: Sales (100,000 units) $200,000 Variable costs 100,000 Contribution margin 100,000 Fixed costs 50,000 Net Income 50,000 If sales were to increase by 200 units, what would be the effect on net income? a. $400 increase b. $200 increase c. $150 increase d. $100 increase e. $200 loss
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.
1. Given the cost and volume information below:
Volume Cost
1 unit $ 15
10 units 150
100 units 1500
What type of a cost is given?
a. fixed cost
b. variable cost
c. step cost
d. mixed cost
e. rent cost. (2 marks)
2. The Cape Cod Cotton Candy Company had the following information available regarding last year’s operations:
Sales (100,000 units) $200,000
Variable costs 100,000
Contribution margin 100,000
Fixed costs 50,000
Net Income 50,000
If sales were to increase by 200 units, what would be the effect on net income?
a. $400 increase
b. $200 increase
c. $150 increase
d. $100 increase
e. $200 loss
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