Tennill Inc. has a $1,400,000 investment opportunity with the following characteristics: Sales $ 4,480,000 Contribution margin ratio 40% of sales Fixed expenses $ 1,657,600 The ROI for this year's investment opportunity considered alone is closest to: Please do not include the % sign in your answer. Round off to one place of decimal
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.
Tennill Inc. has a $1,400,000 investment opportunity with the following characteristics:
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Sales |
$ |
4,480,000 |
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Contribution margin ratio |
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40% of sales |
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Fixed expenses |
$ |
1,657,600 |
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The ROI for this year's investment opportunity considered alone is closest to:
Please do not include the % sign in your answer. Round off to one place of decimal.
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