Tempo Company's fixed budget (based on sales of 12,000 units) for the first quarter reveals the following. Fixed Budget $2,592,000 Sales (12,000 units x $216 per unit) Cost of goods sold Direct materials $288,000 Direct labor 516,000 Production supplies Plant manager salary Gross profit Selling expenses Sales commissions 336,000 88,000 1,228,000 1,364,000 Packaging Advertising Administrative expenses 108,000 168,000 100, өө0 376,000 Administrative salaries 138,000 108,000 Depreciation-office equip. Insurance 78,000 88,000 Office rent 412,000 Income from operations $ 576,000 (1) Compute the total variable cost per unit. (2) Compute the total fixed costs. (3) Compute the income from operations for sales volume of 10,000 units. (4) Compute the income from operations for sales volume of 14,000 units.
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.
(1) Compute the total variable cost per unit.
(2) Compute the total fixed costs.
(3) Compute the income from operations for sales volume of 10,000 units.
(4) Compute the income from operations for sales volume of 14,000 units.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 3 images
