West Island distributes a single product. The company's sales and expenses for the month of June are shown. Sales price per unit $150 Variable costs per unit 80 Fixed expenses 42,000 Using the information presented, answer these questions: 1. What is the break-even point in units sold and dollar sales? I have this part figured out at 600 units and $90,000 2. What is the total contribution margin at the break-even point? Not sure on this one 3. If West Island wants to earn a profit of $21,000, how many units would they have to sell? I came up with 420 units. 4. Prepare a contribution margin income statement that reflects sales necessary to achieve the target profit.
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.
West Island distributes a single product. The company's sales and expenses for the month of June are shown.
Sales price per unit $150
Variable costs per unit 80
Fixed expenses 42,000
Using the information presented, answer these questions:
1. What is the break-even point in units sold and dollar sales?
I have this part figured out at 600 units and $90,000
2. What is the total contribution margin at the break-even point?
Not sure on this one
3. If West Island wants to earn a profit of $21,000, how many units would they have to sell? I came up with 420 units.
4. Prepare a contribution margin income statement that reflects sales necessary to achieve the target profit.
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