VideoSecu produces wall mounts for flat panel television sets. Assume the forecasted income state 16. Special Order ment for next year is as follows. VIDEOSECU Budgeted Income Statement For the Year $5,600,000 Sales ($28 per unit) Cost of good sold ($19 per unit). (3,800,000) 1,800,000 Gross profit.. Selling expenses ($5 per unit) (1,000,000) 2$ $ 800,000 Net income. ADDITIONAL INFORMATION (1) Of the production costs and selling expenses, $1,520,000 and $750,000, respectively, are fixed. (2) VideoSecu received a special order from a hospital supply company offering to buy 10,000 wall mounts for $15. If it accepts the order, there will be no additional fixed selling expenses, and there is currently sufficient excess capacity to fill the order. The company's sales manager argues for rejecting the order because "we are not in the business of paying $19 to make a product to sell for $15." REQUIRED Do think the company should accept the special order? Should the decision be based only d. you the profitability of the sale, or are there other issues that VideoSecu should consider? Explain.
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.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
