Newton cellular manufactures and sells the top line cell phone for the year 2022. Newton has estimated the following: contribution margin per phone $200 variable cost per Cellphone 450 annual fix cost total 180,000 net loss -$400 required prepare a projected contribution type income statement based on the 2022 estimates Newton cellular projected income statement for year ending December 31, 2022. a) Compute the break even in units on sale dollars for 2022. b) How many units is Newton planning to sell in 2022? c) How many additional units must be sold in 2022 to break even? d) How many units need to be sold to earn 100,000 before tax?
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.
Newton cellular manufactures and sells the top line cell phone for the year 2022. Newton has estimated the following:
contribution margin per phone $200
variable cost per Cellphone 450
annual fix cost total 180,000
net loss -$400
required
prepare a projected contribution type income statement based on the 2022 estimates
Newton cellular
a) Compute the break even in units on sale dollars for 2022.
b) How many units is Newton planning to sell in 2022?
c) How many additional units must be sold in 2022 to break even?
d) How many units need to be sold to earn 100,000 before tax?
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