quired information following information applies to the questions layed below.] o Company sold 28,000 units of its only product and orted income of $161,000 for the current year. During a ning session for next year's activities, the production ager notes that variable costs can be reduced 40% by alling a machine that automates several operations. To in these savings, the company must increase its annual 1 costs by $143,000. Total units sold and the selling price unit will not change. ASTRO COMPANY
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.
![quired information
following information applies to the questions
layed below.]
o Company sold 28,000 units of its only product and
orted income of $161,000 for the current year. During a
ning session for next year's activities, the production
ager notes that variable costs can be reduced 40% by
alling a machine that automates several operations. To
in these savings, the company must increase its annual
1 costs by $143,000. Total units sold and the selling price
unit will not change.
ASTRO COMPANY
Contribution Margin Income Statement
For Year Ended December 31
les ($56 per unit)
riable costs ($42 per unit)
ntribution margin.
xed costs
come
1 margin
bution Margin Ratio
umerator:
ute the break-even point in dollar sales for next year
g the machine is installed. (Round your answers to 2
places.)
1
1
$ 1,568,000
1,176,000
392,000
231,000
$ 161,000
point in dollar sales with new machine:
umerator:
1
1
Denominator:
Denominator:
Per unit
= Contribution Margin Ratio
Contribution margin ratio
=
= Break-Even Point in Dollars
= Break-even point in dollars](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Feb21bb1c-9316-42c5-9a95-8aee84d7e301%2F632fed33-f328-463d-a361-27c100047ac2%2Fqd16m7_processed.jpeg&w=3840&q=75)
![Required information
[The following information applies to the questions
displayed below.]
Astro Company sold 28,000 units of its only product and
reported income of $161,000 for the current year. During a
planning session for next year's activities, the production
manager notes that variable costs can be reduced 40% by
installing a machine that automates several operations. To
obtain these savings, the company must increase its annual
fixed costs by $143,000. Total units sold and the selling price
per unit will not change.
ASTRO COMPANY
Contribution Margin Income Statement
For Year Ended December 31
Sales ($56 per unit)
Variable costs ($42 per unit)
Contribution margin
Fixed costs
Income
Contribution margin
1. Compute the break-even point in dollar sales for next year
assuming the machine is installed. (Round your answers to 2
decimal places.)
Contribution Margin Ratio
Numerator:
1
1
$ 1,568,000
1,176,000
392,000
231,000
$ 161,000
Break-even point in dollar sales with new machine:
Numerator:
1
1
Denominator:
Denominator:
Per unit
= Contribution Mar
Contribution marg
=
Break-Even Point
Break-even point i](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Feb21bb1c-9316-42c5-9a95-8aee84d7e301%2F632fed33-f328-463d-a361-27c100047ac2%2Fjaq858i_processed.jpeg&w=3840&q=75)
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