
Cost-Volume-Profit Analysis:
The cost-volume analysis is the method to analyze the effect on net income due to change in fixed and variable cost and sales volume.
(1)
To identify: Selling price per composite unit.

Explanation of Solution
Given,
Sales price per window is $200.
Sales price per door is $500.
Variable cost per door is $350.
Variable cost per window is $125.
Fixed cost is $900,000.
Ratio of window and doors is 8:2.
Table represents the selling price per composite unit.
Particulars | Ratio | Selling price per unit ($) | Total amount ($) |
Window | 8 | 200 | 1,600 |
Doors | 2 | 500 | 1,000 |
2,600 |
(2)
To identify: The variable cost per composite unit.
(2)

Explanation of Solution
Given,
Variable cost per door is $350.
Variable cost per window is $125.
Ratio of window and doors is 8:2.
Table represents the variable cost per composite unit.
Particulars | Ratio | Variable cost per unit ($) | Total amount ($) |
Window | 8 | 125 | 1,000 |
Doors | 2 | 350 | 700 |
1,700 |
(3)
To identify: The break-even point in composite units.
(3)

Explanation of Solution
Given,
Fixed cost is $900,000.
Calculated values (working note),
Unit contribution margin is $900.
Formula to calculate break- even point of sales units,
Substitute $900,000 for fixed cost and $900 for unit margin.
Working note:
Calculated values from part (1) and (2),
Selling price per composite unit is $2,600.
Variable cost per composite unit is $1,700.
Calculation of unit contribution margin,
Contribution margin per composite unit is $900.
Hence, break-even point of sale is 1,000 composite units.
(4)
To identify: The number of units of each product sold at break-even point.
(4)

Explanation of Solution
Calculated values from part (1) and (2) and (3),
Selling price per composite unit is $2,600.
Variable cost per composite unit is $1,700.
Break-even point of sale is 1,000 composite units.
Formula to calculate break-even point for windows,
Substitute 1,000 units for break-even point of composite unit, $1,600 for sales amount of windows and $2,600 for selling price per composite units.
Formula to calculate break-even point for doors,
Substitute 1,000 units for break-even point of composite unit, $1,000 for sales amount of doors and $2,600 for selling price per composite units.
Hence, break-even point of windows and doors are 615 units or 385 units.
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Chapter 5 Solutions
Managerial Accounting
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