The following information pertains to Dodge Company's three products: A B C Unit sales per month 250 400 250 Selling price per unit $9.00 $12.00 $ 9.00 Variable costs per unit 3.60 9.00 9.90 Unit contribution margin $5.40 $ 3.00 $(0.90) Contribution margin ratio 60% 25% (10)% Assume that product C is discontinued and the extra space is rented for $300 per month. All other information remains the same as the original data. Monthly profits will increase by $75. decrease by $75. increase by $525. remain the same.
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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The following information pertains to Dodge Company's three products:
ABCUnit sales per month 250400250Selling price per unit $9.00$12.00$ 9.00Variable costs per unit 3.609.009.90Unit contribution margin $5.40$ 3.00$(0.90)Contribution margin ratio 60%25%(10)%
Assume that product C is discontinued and the extra space is rented for $300 per month. All other information remains the same as the original data. Monthly profits willincrease by $75.
decrease by $75.
increase by $525.
remain the same.
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