Question-Anuradha Enterprises manufactures and sells black phenyl worth Rs.20,000 white phenyl worth F scented phenyl worth Rs.10,000 and naphthalene balls worth Rs.5,000every month. The firm's total fixed cc month are Rs.14,700. The variable costs are: on black phenyl 60% on white phenyl 68%, on scented phenylE naphthalene balls 40%. The proprietor, Ms. Anuradha Shah, being basically a science graduate, wonders at what combined sales volu really start earning profit. Please aelp her in arriving at such a sales volume. M Compony's Central Services Department is evaluating new cop/ng machines to rep'ace the firm's current cop Is worn out. The analysis of alternative machines has been narrowed to three and the estimated costs of operat are shown below: Cost per 100 copies Machine A Machine B Vachine C Rs. Rs. Rs. Materlals Cost 60 40 20 Labour Cost 80 30 20 Annua' Lease Cost 30,000 58,000 1,00,000 Beguired
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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