The 40471-SQ company manufactures a product that sells for $25 per unit. At present, the product is manufactured in a factory that mostly uses direct labor workers. The variable expenses are $15 per unit and the direct labor cost makes up 60% of variable expenses. Last year, the 40471-SQ company sold 44,000 units of its product and provided the following results: Sales (44,000 balls) $1,100,000 660,000 440,000 317,000 Variable expenses Contribution margin Fixed expenses Net operating income $ 123,000 The 40471-SQ company considers building a new and high-tech factory. The new factory would reduce variable expenses per unit by 40%, but would double the company's fixed expenses per year due to investment in fixed assets. If the new factory is built, how many units will the 40471-SQ company have to sell next year to earn the same net operating income, $123,000, as last year? (Round your answer, if necessary, to the closest number below.)
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.
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