Schylar Pharmaceuticals, Inc., plans to sell 120,000 units of antibiotic at an average price of $18 each in the coming year. Total variable costs equal $820,800. Total fixed costs equal $7,600,000. 1. What if the average price per unit increased to $19.50? Recalculate the following: a. Contribution margin per unit. Round your answer to the nearest cent. b. Contribution margin ratio. Enter your answer as a decimal value (not a percentage), rounded to four decimal places. c. Sales revenue needed to break even. In your computations, use your rounded answer from part (4-b) above for the contribution margin ratio, and round your final answer to the nearest dollar. d. Sales revenue needed to achieve a target profit of $270,000. In your computations, use your rounded answer from part (4-b) above for the contribution margin ratio, and round your final answer to the nearest dollar.
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.
Schylar Pharmaceuticals, Inc., plans to sell 120,000 units of antibiotic at an average price of $18 each in the coming year. Total variable costs equal $820,800. Total fixed costs equal $7,600,000.
1. What if the average price per unit increased to $19.50? Recalculate the following:
a. Contribution margin per unit. Round your answer to the nearest cent.
b. Contribution margin ratio. Enter your answer as a decimal value (not a percentage), rounded to four decimal places.
c. Sales revenue needed to break even. In your computations, use your rounded answer from part (4-b) above for the contribution margin ratio, and round your final answer to the nearest dollar.
d. Sales revenue needed to achieve a target profit of $270,000. In your computations, use your rounded answer from part (4-b) above for the contribution margin ratio, and round your final answer to the nearest dollar.
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