JWG Company publishes Creative Crosswords. Last year, the book of puzzles sold for $10, which a variable operating cost of $8 per book and a fixed operating cos of $40,000. How many books must JWG sell this year to achieve the breakeven point for the stated operating costs if all figures remain the same as for last year? How many books must JWG sell this year to achieve the breakeven point for the stated operating costs if fixed operating costs increase to $44,000 and all other figures remain the same? How many books must JWG sell this year to achieve the breakeven point for the stated operating costs if the selling price increases to $10.50 and all costs remain the same as for last year? How many books must JWG sell this year to achieve the breakeven point for the stated operating costs if the variable operating cost per book increases to $8.50 and all other figures remain the same? What conclusions about the operating breakeven point can be drawn from your answers?
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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JWG Company publishes Creative Crosswords. Last year, the book of puzzles sold for $10, which a variable operating cost of $8 per book and a fixed operating cos of $40,000.
-
How many books must JWG sell this year to achieve the breakeven point for the
stated operating costs if all figures remain the same as for last year?
-
How many books must JWG sell this year to achieve the breakeven point for the
stated operating costs if fixed operating costs increase to $44,000 and all other figures
remain the same?
-
How many books must JWG sell this year to achieve the breakeven point for the
stated operating costs if the selling price increases to $10.50 and all costs remain the
same as for last year?
-
How many books must JWG sell this year to achieve the breakeven point for the
stated operating costs if the variable operating cost per book increases to $8.50 and all
other figures remain the same?
-
What conclusions about the operating breakeven point can be drawn from your
answers?
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