Q2. During the first month of operations ended Jan 31, 2019./Techcity Inc., manufactured 6.400 parts of which /5,200 parts were sold. And next month, February, this company made another 4,000 parts and sold 5,200 parts. Operating data for the month are summarized as follows: (pr-5-3b) Data for January, 2019 Sales $104,000 Manufacturing costs Direct Materials Direct Labor Variable manufacturing costs $47,360 S22,400 $12,160 $15.360- S97,280 Fixed manafacturing costs Selling and administrative expenses Variable Fixed $10,920 $5,200 S16,120 Data for February, 2019 Sales S104,000 Manufacturing costs Direct Materials 21 S29,600 $14,000 $7,600 Direct Labor Variable manufacturing costs $66,560 Fixed manafacturing costs. Selling and administrative expenses S15,360 Variable S10,920 $5,200 Fixed $16,120 Instructions) 1. Using the absorption costing, calculate net income of January and February, 2019. 2. Using the variable costing, calculate net income of January and February, 2019. 3. Make income statement based on the absorption costing for Feburary, 2019.
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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