Concept explainers
Concept Introduction:
Cost Volume Profit (CVP) Analysis:
The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.
Contribution margin means the margin that is left with the company after recovering variable cost out of revenue earned by selling smart phones. The formula for contribution margin is as follows:
Contribution margin = Sales - Variable cost.
Similarly contribution margin ratio = Contribution/sales
Breakeven Point:
The Breakeven point is the level of sales at which the net profit is nil. It can be explained as a situation where the business is generating a sale that is equal to the expenses incurred and hence no
Weighted Average Contribution Margin:
Weighted Average Contribution Margin is calculated for two products with the help of following formula:
To Calculate:
The Breakeven point in units for each product
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Chapter 11 Solutions
Survey of Accounting (Accounting I)
- Using the information in the previous exercises about Marleys Manufacturing, determine the operating income for department B, assuming department A sold department B 1,000 units during the month and department A reduces the selling price to the market price.arrow_forwardWest Island distributes a single product. The companys sales and expenses for the month of June are shown. Using the information presented, answer these questions: A. What is the break-even point in units sold and dollar sales? B. What is the total contribution margin at the break-even point? C. If West Island wants to earn a profit of $21,000, how many units would they have to sell? D. Prepare a contribution margin income statement that reflects sales necessary to achieve the target profit.arrow_forwardMarkham Farms reports the following contribution margin income statement for the month of August. The company has the opportunity to purchase new machinery that will reduce its variable cost per unit by $2 but will increase fixed costs by 15%. Prepare a projected contribution margin income statement for Markham Farm assuming it purchases the new equipment. Assume sales level remains unchanged.arrow_forward
- Wellington, Inc., reports the following contribution margin income statement for the month of May. The company has the opportunity to purchase new machinery that will reduce its variable cost per unit by $10 but will increase fixed costs by 20%. Prepare a projected contribution margin income statement for Wellington, Inc., assuming it purchases the new equipment. Assume sales level remains unchanged.arrow_forwardIncome Statements under Absorption and Variable Costing In the coming year, Kalling Company expects to sell 28,700 units at 32 each. Kallings controller provided the following information for the coming year: Required: 1. Calculate the cost of one unit of product under absorption costing. 2. Calculate the cost of one unit of product under variable costing. 3. Calculate operating income under absorption costing for next year. 4. Calculate operating income under variable costing for next year.arrow_forwardPresented here is the income statement for Big Sky Incorporated for the month of February: Sales $ 60,000 Cost of goods sold 51,900 Gross profit $ 8, 100 Operating expenses 15,200 Operating loss $ (7,100) Based on an analysis of cost behavior patterns, it has been determined that the company's contribution margin ratio is 19%. Required: Rearrange the preceding income statement to the contribution margin format. If sales increase by 10%, what will be the firm's operating income (or loss)? Calculate the amount of revenue required for Big Sky to break even.arrow_forward
- Cost-Volume-Profit Chart For the coming year, Loudermilk Inc. anticipates fixed costs of $600,000, a unit variable cost of $75, and a unit selling price of $125. The maximum sales within the relevant range are $2,500,000. a. Construct a cost-volume-profit chart on a sheet of paper. Indicate whether each of the following levels of sales (units or dollars) is in the operating profit area, operating loss area, or at the break-even point. 4,800 units 12,000 units $1,500,000 20,000 units $2,500,000 b. Estimate the break-even sales (dollars) by using the cost-volume-profit chart constructed in part (a). c. The graphic format permits the user to visually determine the and the * for any given level ofarrow_forwardHudson Company reports the following contribution margin income statement. Hudson Company reports the following contribution margin income statement.A manufacturer's contribution margin income statement for the yearfollows. Required: Prepare a contribution margin income statement if the number of units sold (a) increases by 200 units and (b) decreases by 200 units. HUDSON COMPANY Contribution Margin Income Statement For Year EndeDecember 31 Required: 1. Assume Hudson has a target income of $162,000. What amount of sales dollars is needed to produce this target income? 2. If Hudson achieves its target income, what is its margin of safety (in percent) ?Margin of safetyarrow_forwardVerify your answer by preparing a contribution format income statement at the target sales level.arrow_forward
- Jellico Inc.’s projected operating income (based on sales of 450,000 units) for the coming year isas follows:TotalSales $11,700,000Total variable cost 8,190,000Contribution margin $ 3,510,000Total fixed cost 2,254,200Operating income $ 1,255,800Required:1. Compute: (a) variable cost per unit, (b) contribution margin per unit, (c) contribution margin ratio, (d) break-even point in units, and (e) break-even point in sales dollars.2. How many units must be sold to earn operating income of $296,400?3. Compute the additional operating income that Jellico would earn if sales were $50,000 morethan expected.4. For the projected level of sales, compute the margin of safety in units, and then in salesdollars.5. Compute the degree of operating leverage. (Note: Round answer to two decimal places.)6. Compute the new operating income if sales are 10% higher than expected.arrow_forwardRowe Tool and Die (RTD) produces metal fittings as a supplier to various manufacturing firms in the area. The following is the forecasted income statement for the next quarter, which is the typical planning horizon used at RTD. RTD expects to sell 61,000 units during the quarter. RTD carries no inventories. Sales revenue Costs of fitting produced Gross profit Administrative costs Operating profit Required A Fixed costs included in this income statement are $396,500 for depreciation on plant and machinery and miscellaneous factory operations and $102,500 for administrative costs. RTD has received a request for 10,000 fittings to be produced in the next quarter from Endicott Manufacturing. Endicott has never purchased from RTD, although they have been a local company for many years. Endicott has offered to pay $21.60 per unit. RTD can easily produce the 10,000 units with its existing capacity. Production of the 10,000 units will incur all variable manufacturing costs but no fixed…arrow_forwardPrepare CVP income statements. Olsen Company has the following information available for September 2019. Unit selling price of video game consoles $ 400 Unit variable costs $ 275 Total fixed costs $52,000 Units sold 600 Instructions (a) Compute the contribution margin per unit. (b) Prepare a CVP income statement that shows both total and per unit amounts.arrow_forward
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