Tyra Toy Company incurred the following costs during 20x1: Direct Materials ₱ 5,000,000 Direct Labor 3,500,000 Manufacturing Overhead Utilities (primarily electricity) 250,000 Depreciation Plant and Equipment 350,000 Insurance 260,000 Supervisory Salary 470,000 Property Taxes 330,000 Selling Cost: Advertising 315,000 Sales Commission 145,000 Administrative Costs: Salaries of top management 580,000 Office Supplies 70,000 Depreciation on Building and Equipment 140,000 The company sold all of its products manufactured during the year. Depreciation is on a straight-line basis. During 20x1, the company operated at about half of its capacity, due to a slowdown in the economy. Prospects for 20x2 are slightly better. The marketing manager, forecasts a 30 percent growth in sales over the 20x1 level. TOTAL FIXED COST in 20x1 amount to ₱______________
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.
Tyra Toy Company incurred the following costs during 20x1:
|
Direct Materials |
₱ 5,000,000 |
|
Direct Labor |
3,500,000 |
|
Manufacturing |
|
|
Utilities (primarily electricity) |
250,000 |
|
|
350,000 |
|
Insurance |
260,000 |
|
Supervisory Salary |
470,000 |
|
Property Taxes |
330,000 |
|
Selling Cost: |
|
|
Advertising |
315,000 |
|
Sales Commission |
145,000 |
|
Administrative Costs: |
|
|
Salaries of top management |
580,000 |
|
Office Supplies |
70,000 |
|
Depreciation on Building and Equipment |
140,000 |
The company sold all of its products manufactured during the year. Depreciation is on a straight-line basis. During 20x1, the company operated at about half of its capacity, due to a slowdown in the economy. Prospects for 20x2 are slightly better. The marketing manager,
TOTAL FIXED COST in 20x1 amount to ₱_______________
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