ugust the following
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 following information applies to the questions displayed below.]
Valley Company's adjusted account balances from its general ledger on August 31, its fiscal year-end, follow
categorizes the following accounts as selling expenses: sales salaries expense, rent expense-selling space
supplies expense, and advertising expense. It categorizes the remaining expenses as general and administra
Adjusted Account Balances
Merchandise inventory (ending)
Other (non-inventory) assets
Total liabilities
Common stock
Retained earnings
Dividends
Sales
Debit
$ 33,500
134,000
Credit
$38,693
67,029
45,095
8,000
229,140
Sales discounts
Sales returns and allowances
Cost of goods sold
Sales salaries expense
Rent expense-Selling space
Store supplies expense
Advertising expense
Office salaries expense
Rent expense-Office space
Office supplies expense
3,506
15,123
89,129
31,392
10,770
2,750
19,477
28,643
2,750
917
es
Totals
$ 379,957
$ 379,957
Beginning merchandise inventory was $27,035. Supplementary records of merchandising activities for the year endea
August 31 reveal the following itemized costs.
Invoice cost of merchandise purchases
Purchases discounts received
Purchases returns and allowances
Costs of transportation-in
$ 98,490
2,068
4,728
3,900
Required:
1. Compute the company's net sales for the year.
2. Compute the company's total cost of merchandise purchased for the year.
3. Prepare a multiple-step income statement that includes separate categories for net sales, cost of goods sold, selling expenses,
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Net sales are calculated by deducting sales discount, sales returns etc. from gross sales. Similarly net purchases are calculated by decucting purchase discouns and purchase returns from gross purchases. We add transport charges incurred for purchase of material to get total purchase cost .
A multiple income statement is prepared by showing multiple stages of various profits . From sales when we deduct cost of sales we get Gross Profit. From Gross Profit when we deduct operating expenses [expenses incurred to run the main activity of business] we get Operating Profit. Then we deduct financial expenses and add other incomes to get Net Profit before tax. After deducting tax we get Net Profit .
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