Thornton Manufacturing Company reported the following data regarding a product it manufactures and sells. The sales price is $44. 12 Variable costs Manufacturing Selling Fixed costs Manufacturing Selling and administrative 17 per unit 6 per unit $152,000 per year $102,100 per year Required a. Use the per-unit contribution margin approach to determine the break-even point in units and dollars. b. Use the per-unit contribution margin approach to determine the level of sales in units and dollars required to obtain a profit of $178,500. c. Suppose that variable selling costs could be eliminated by employing a salaried sales force. If the company could sell 21,400 units, how much could it pay in salaries for salespeople and still have a profit of $178,500? (Hint Use the equation method.) a Break-even point in units Break-even point in dollars b Required sales in units Required sales in dollars C Fixed cost of salaries
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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