Green Meadows makes three types portable coolers. The company's total fixed cost P1,080,000. Selling prices, variable costs, and sales percentages of each type of cooler follow: SALES VARIABLE CÓST P 7,600 12,000 20,000 MODEL SELLING PRICE P 8,800 14,800 24,000 MIX 30% 50% 20% X100 X950 C 800 1.What is the company's break-even point in units and pesos? 2.If the company has a target of IM how many units of each type of cooler must be sold
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.
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