Requirements: Answer both questions A. During the year, Bubba Manufacturing Company produced 4,000 units of product. What was the production cost of each unit? B. How does the format of the income statement for a manufacturing entity differ from the income statement of a merchandising entity?
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.
Bubba Manufacturing Company provided the following information for the fiscal year to
June 30, 2020:
Inventories 01/07/2019 30/06/2020
Direct Materials $72,000 $65,000
Work-in-Process 107,000 128,000
Finished Goods 149,500 141,700
Other information:
Office cleaner’s wages 4,500
Sales Revenue 1,031,000
Raw materials purchased 235,000
Factory wages 239,700
Indirect materials 23,500
Delivery truck driver’s wages 15,400
Indirect labor 9,500
Insurance1 60,000
Depreciation on delivery truck 7,250
Utilities2 118,750
Administrative salaries 41,250
Special Design Costs 5,000
Selling expenses 9,000
Sales Commission 2% of gross profit
1 Of the total insurance, 66⅔% relates to the factory facilities & 33⅓% relates to general
& administrative costs.
2 Of the total utilities, 80% relates to the manufacturing facilities & 20% relates to the
office area.
Requirements: Answer both questions
A. During the year, Bubba Manufacturing Company produced 4,000 units of product. What was the production cost of each unit?
B. How does the format of the income statement for a manufacturing entity differ from the income statement of a merchandising entity?
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