LG produce refrigerators for consumer use. Each refrigerator cost LG RO250 and they sell each with RO400. The company pay a fixed cost 300000 every year. They also have a profit target of 25000 after tax and a profit target of 40000 pre-tax. The tax rate for the year is 40%. How much sales revenue they should make to achieve the targeted pre-tax profit: Select one: O a. RO 806666.667 O b. RO 906666.667 O . RO 966666.667 d. RO 866666.667
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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