Concept explainers
1)
Introduction:
Contribution Margin:
- Contribution Margin refers to the excess of Sales revenues over variable and fixed costs. Since it contributes to the overall profitability of the business it is referred to as contribution margin.
- Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.
- Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent,
depreciation on plant and equipment
Breakeven Point:
• Breakeven point is the monetary value of sales or number of units of sales where the contribution equals the fixed costs and the
• Breakeven point is considered as the minimum sales needed to sustain a business without incurring losses.
a) Breakeven point with no change in information
b) Breakeven point with $250 reduced sales price
c) Breakeven point with $100 reduced variable costs
d) Breakeven point with $122,500 of fixed costs
2)
Introduction:
Contribution Margin:
- Contribution Margin refers to the excess of Sales revenues over variable and fixed costs. Since it contributes to the overall profitability of the business it is referred to as contribution margin.
- Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor.
- Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment
Breakeven Point:
• Breakeven point is the monetary value of sales or number of units of sales where the contribution equals the fixed costs and the profit / loss is zero.
• Breakeven point is considered as the minimum sales needed to sustain a business without incurring losses.
Sensitivity Analysis:
• Sensitivity Analysis is a study of the proportionate changes in the output of a calculation in response to a corresponding change in the inputs of the calculation.
• For instance, if contribution margin and breakeven point are analyzed, the changes in contribution margin and breakeven point corresponding to changes in the values of sales price, variable costs and fixed costs would be studied under sensitivity analysis.
• The objective of sensitivity analysis is to determine which factor of input has the greatest impact on the output and use appropriate controls to track and monitor such inputs.
• Impact of $250 reduced sales price on Contribution Margin and Breakeven point
• Impact of $100 reduced variable costs on Contribution Margin and Breakeven point
• Impact of $122,500 of fixed costs on Contribution Margin and Breakeven point
Want to see the full answer?
Check out a sample textbook solutionChapter 21 Solutions
Horngren's Accounting
- The industrial enterprise "HUANG S.A." purchased a sorting and packaging machine from a foreign company on 1/4/2017 at a cost of €500,000. The useful life of the machine was estimated by the Management at ten (10) years, while the residual value was estimated at zero. For the transportation of the machine from abroad to the company's factory, the amount of €20,000 was paid on 15/4/2017. As the insurance coverage of the machine during transportation was the responsibility of the selling company, HUANG S.A. proceeded to insure the machine from 16/4/2017 to 15/4/2018, paying the amount of €1,200. The delivery took place on 15/4/2017. As adequate ventilation of the multifunction device is essential for its proper operation, the company fitted an air duct on the multifunction device. The cost of the air duct amounted to €2,000 and was paid on 20/4/2017. On 25/4/2017, an external electrician was paid €5,000 for the electrical connection of the device. The company also paid €5,000 to an…arrow_forwardI need answer typing clear urjent no chatgpt used pls i will give 5 Upvotes.only typing .arrow_forwardCash flow cyclearrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education