The HASF Ink Ltd income statement for the preceding year is presented below except as noted the cost/revenue relationship for the coming year is expected to follow the same pattern as in the preceding year Income statement for the year ending March 31 is as follows Sales (200.000 units 25 Each) Rs. 5 00000 Variable cost Contribution margin 300000 CM 200000
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.
The HASF Ink Ltd income statement for the preceding year is presented below except as noted the cost/revenue relationship for the coming year is expected to follow the same pattern as in the preceding year Income statement for the year ending March 31 is as follows
Sales (200.000 units 25 Each) Rs. 5 00000
Variable cost Contribution margin 300000
CM 200000
Less Fixed cost 100000
Profit before tax 100000
Less tax 35000
Profit after tax 65000
Required
What is the break even point in amount
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