nse was £4.50 per unit. The company needed to sell 20,000 of stationary to break even. The operating profit last year was €16,800. The Company anticipations for the coming year include the following: The selling price per stationary will be £18.00. Variable expenses will increase by one third. Fixed expenses will increase by 10 per cent. Sales for the coming year are expected to exceed last year's by 1,000 units. If this occurs, sales volume in the coming year will be:
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.
A Company manufactures and sells stationary. Last year, the stationary it sold for £15 each, and
the variable expense was £4.50 per unit. The company needed to sell 20,000 of stationary to
break even. The operating profit last year was €16,800. The Company anticipations for the
coming year include the following:
The selling price per stationary will be £18.00. Variable expenses will increase by one third. Fixed
expenses will increase by 10 per cent.
Sales for the coming year are expected to exceed last year's by 1,000 units. If this occurs,
sales volume in the coming year will be:
A. 22,600
B. 21,960
C. 23,400
D. 21,000
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