The BZ-91825 company charges a price of $242 per unit of its product. The company's variable cost per unit is $55. The BZ-91825 company on average sells 8,200 units per month. Fixed expenses are $878,000 per month. The company considers cutting the selling price by $29 and increasing its advertising budget by $63,000 per month. The company predicts monthly sales quantity to increase by 22%. What is the overall effect on the BZ-91825 company's monthly net operating income of these changes? Note: A POSITIVE number indicates an INCREASE in net operating income, and a NEGATIVE number indicates a DECREASE in net operating income) Multiple Choice -15,768 dollars 63,520 dollars 13,800 dollars -63,840 dollars
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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