The Personal Care Product Division of Ligo Company produces and markets two products for use in personal hygiene: Shampoo and Bath Soap. The following data were gathered on activities last month: Sales in units 2000 9000 Selling price per unit Variable production cost per unit Traceable fixed production cost Variable selling expense per unit Traceable fixe selling expense Allocated division administrative expense P280,000 P350 P140 P 35 P231,000 P140 P84,000 P14 P7 P14,000 P21,000 P504,000
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.
REQUIRED:
How much is the company's total segment margin last month?
Step by step
Solved in 2 steps
