Yang Inc. produces only one product, berry baskets, which it sells for P72 each. Unit variable costs are P32 and total fixed expenses are P15,000. Actual sales for the month of June totaled 2,000 units. Required: How much is the current operating income of the company? Compute the break-even point in peso and in units To attain an after tax profit of P40,000 with a tax rate of 20%, the number of units to be sold will be? Compute the margin of safety in units and peso for the company for June. Compute the degree of operating leverage for the month of June. If the company is expecting for units sale to increase by 20% in July, what is the expected operating income?
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.
Yang Inc. produces only one product, berry baskets, which it sells for P72 each. Unit variable costs are P32 and total fixed expenses are P15,000. Actual sales for the month of June totaled 2,000 units.
Required:
- How much is the current operating income of the company?
- Compute the break-even point in peso and in units
- To attain an after tax profit of P40,000 with a tax rate of 20%, the number of units to be sold will be?
- Compute the margin of safety in units and peso for the company for June.
- Compute the degree of operating leverage for the month of June.
- If the company is expecting for units sale to increase by 20% in July, what is the expected operating income?
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