's and would like to earn a long-run i ka division will change its unit selling is return. The following data are ava
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.
How much should the company set as selling price if it is to achieve the target of 20%
![1. Tokyo Company is a producer and distributor of various motorized
recreational scooter, bike and motorcycle products. The Osaka
division handles scooters and would like to earn a long-run rate of
return of 20%. The Osaka division will change its unit selling price as
necessary to provide this return. The following data are available on
the division and its product:
Variable cost per scooter
P 200
Total annual fixed costs
P 1,220,000
Long-run normal demand
10,000 units each year
Average operating assets
P 1,400,000
How much should the company set as selling price if it is to achieve the
target of 20% Rol?
O P 228
O P 350
P 294
O P 150](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa0a84bc9-4946-4206-b5bb-23255d2163e4%2Fe810ac19-fb2e-4340-8518-8361c23de21c%2Fpav5zk_processed.jpeg&w=3840&q=75)
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