Vita Limited started its operation in the year 2013 with a total production capacity of 2,00,000 units. The following information, for two years, are made available to you: Year 2013: Sales units=80,000 Total cost=34,40,000 Year 2014: Sales units=1,20,000 Total cost=45,60,000 There has been no change in the cost structure and selling price and it is anticipated that it will remain unchanged in the year 2015 also. Selling price is 40 per unit. Calculate: Variable cost per unit Profit Volume Break-Even Point (in units)
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.
Vita Limited started its operation in the year 2013 with a total production capacity of 2,00,000 units. The following information, for two years, are made available to you:
Year 2013:
Sales units=80,000
Total cost=34,40,000
Year 2014:
Sales units=1,20,000
Total cost=45,60,000
There has been no change in the cost structure and selling price and it is anticipated that it will remain unchanged in the year 2015 also.
Selling price is 40 per unit.
Calculate:
- Variable cost per unit
- Profit Volume
- Break-Even Point (in units)
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