16th Edition

ISBN: 9781323169261

Author: Horngren

Publisher: PEARSON C

Concept explainers

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 st…

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 r…

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Textbook Question

Chapter 3, Problem 3.40P

CVP analysis, margin of safety. Marketing Docs prepares marketing plans for growing businesses. For 2017, budgeted revenues are $1,500,000 based on 500 marketing plans at an average rate per plan of $3,000. The company would like to achieve a margin of safety percentage of at least 45%. The company’s current fixed costs are $400,000 and variable costs average $2,000 per marketing plan. (Consider each of the following separately.)

1. Calculate Marketing Docs’ breakeven point and margin of safety in units.

Required

2. Which of the following changes would help Marketing Docs achieve its desired margin of safety?
1. a. The average revenue per customer increases to $4,000.
2. b. The planned number of marketing plans prepared increases by 5%.
3. c. Marketing Docs purchases new software that results in a 5% increase to fixed costs but reduces variable costs by 10% per marketing plan.

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Chapter 3, Problem 3.39P

Chapter 3, Problem 3.41P

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Chapter 3 Solutions

COST ACCOUNTING

Ch. 3 - Define costvolumeprofit analysis.Ch. 3 - Describe the assumptions underlying CVP analysis.Ch. 3 - Distinguish between operating income and net...Ch. 3 - Prob. 3.4Q Ch. 3 - Prob. 3.5Q Ch. 3 - Why is it more accurate to describe the subject...Ch. 3 - CVP analysis is both simple and simplistic. If you...Ch. 3 - Prob. 3.8Q Ch. 3 - Prob. 3.9Q Ch. 3 - Give an example of how a manager can decrease...

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Solution Summary: The author explains that break-even point is a point of sales where company can cover all its variable and fixed costs. Contribution margin is the excess of selling price over the variable costs of the product.

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Chapter 3 Solutions