You are given the following information in respect of a company: Budgeted output 50, 000 units Selling Price per unit OMR 60 Variable Cost per unit OMR 40 Total Fixed Costs OMR 20,000 Draw a break-even chart showing the breakeven point. If the selling price is reduced to OMR 50 per unit, what will be the new break- even point?
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.
You are given the following information in respect of a company:
Budgeted output 50, 000 units
Selling Price per unit OMR 60
Variable Cost per unit OMR 40
Total Fixed Costs OMR 20,000
Draw a break-even chart showing the breakeven point. If the selling price is
reduced to OMR 50 per unit, what will be the new break- even point?
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