Ziga Company manufactures lamps and expects to sell 350,000 units in 2022 at P21 per unit. Planned per unit manufacturing costs at the level of production are as follows: Variable manufactuing costs P9.00 Fixed manufacturing costs 5.00 Earning in 2020, a new customer approaches Ziga Co. offers to buy 15,000 lamps at P11.00 per unit. Ziga can produce additional units with no change in fixed manufacturing cost or per unit variable cost. The only additional fixed cost for this order is for packing and shipping, estimated at P30,000. Required: Determine whether Ziga should accept the special order (filling the special order will not affect the regular sales). What is the total profit of Ziga if the special order is accepted. Show supporting computations. If the new customer’s offer to buy 15,000 lamps is accepted, what is the minimum price per unit charge by Ziga if the company expects a profit of P50,000 from this order? Assuming Ziga can only produce an additional of 10,000 units but the special order calls for 15,000 units. Should the order for 15,000 units be accepted? How much is the total profit for Ziga if the special order is accepted.
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.
Ziga Company manufactures lamps and expects to sell 350,000 units in 2022 at P21 per unit. Planned per unit
Variable manufactuing costs P9.00
Fixed manufacturing costs 5.00
Earning in 2020, a new customer approaches Ziga Co. offers to buy 15,000 lamps at P11.00 per unit. Ziga can produce additional units with no change in fixed manufacturing cost or per unit variable cost. The only additional fixed cost for this order is for packing and shipping, estimated at P30,000.
Required:
- Determine whether Ziga should accept the special order (filling the special order will not affect the regular sales). What is the total profit of Ziga if the special order is accepted. Show supporting computations.
- If the new customer’s offer to buy 15,000 lamps is accepted, what is the minimum price per unit charge by Ziga if the company expects a profit of P50,000 from this order?
- Assuming Ziga can only produce an additional of 10,000 units but the special order calls for 15,000 units. Should the order for 15,000 units be accepted? How much is the total profit for Ziga if the special order is accepted.
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