Question 29: Salazar Electronics Corporation makes cell phones. Their records for the month of March are as follows: 1600 units were sold Total Sales $800,000. Total Variable Costs $480,000. Total monthly fixed costs $200,000 Selling price for one unit (one cell phone) is $500. Variable cost of one unit is $300. Part A: Use the information provided above to prepare a Contribution Income Statement to show Net Income (5 points)
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.
Question 29: Salazar Electronics Corporation makes cell phones. Their records for the month of March are as follows:
1600 units were sold
Total Sales $800,000.
Total Variable Costs $480,000.
Total monthly fixed costs $200,000
Selling price for one unit (one cell phone) is $500.
Variable cost of one unit is $300.
Part A: Use the information provided above to prepare a Contribution Income Statement to show Net Income (5 points)
Part B: What is the Contribution Margin? Answer in Dollars: (1 points)
Part C: What is the Unit Contribution Margin? Answer in Dollars: (1 point)
Part D: What is the Contribution Margin Ratio? Answer in % (2 point)
Part E: What is the breakeven point? Answer in units or dollars: (2 points)
Bonus:
Part F: If the desired profit is $120,000., what is the target unit sales volume? Answer in units: (3 points)
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