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Business Finance EBK HEALTHCARE FINANCE: AN INTRODUCTIO

a. To explain: The equation used to calculate volume break even. Introduction: CVP or Cost Volume Profit analysis is a technique of accounting used for identification of the impact of product cost and sales volume have on the business’s operating profit. Break even volume is the quantity of units of an item that an organization needs to sell all together for the business where the expenses are equal to the sales revenue. In numerous organizations, there are startup expenses and afterward unit costs. There is likewise income from sale of an item. At the point when these are equal, it can be said that break even volume has been achieved. Formula to calculate break even volume: Break even volume= Fixed cost ( Selling price per unit– variable cost per unit ) Where, Fixed costs are the cost that remains unchanged with the change in sales volume. Variable costs are the cost that are dependent on the sales volume and fluctuates with the sales volume. Selling price is the price at which an item is sold. b. To state: The part of contribution margin in break even formula. Introduction: CVP or Cost Volume Profit analysis is a technique of accounting used for identification of the impact of product cost and sales volume have on the business’s operating profit. Contribution margin refers to that part of the sales revenue, which is not consume by the revenue received from sales and can be used to cover the fixed cost of the business. Contribution margin per unit = Selling price per unit - variable cost per unit The difference between the selling price and variable cost is the contribution margin that a company earns. Fixed cost is divided by the contribution margin per unit in break even formula in order to find out the number of units that must be sold by the company in order to reach breakeven volume.

a. To explain: The equation used to calculate volume break even. Introduction: CVP or Cost Volume Profit analysis is a technique of accounting used for identification of the impact of product cost and sales volume have on the business’s operating profit. Break even volume is the quantity of units of an item that an organization needs to sell all together for the business where the expenses are equal to the sales revenue. In numerous organizations, there are startup expenses and afterward unit costs. There is likewise income from sale of an item. At the point when these are equal, it can be said that break even volume has been achieved. Formula to calculate break even volume: Break even volume= Fixed cost ( Selling price per unit– variable cost per unit ) Where, Fixed costs are the cost that remains unchanged with the change in sales volume. Variable costs are the cost that are dependent on the sales volume and fluctuates with the sales volume. Selling price is the price at which an item is sold. b. To state: The part of contribution margin in break even formula. Introduction: CVP or Cost Volume Profit analysis is a technique of accounting used for identification of the impact of product cost and sales volume have on the business’s operating profit. Contribution margin refers to that part of the sales revenue, which is not consume by the revenue received from sales and can be used to cover the fixed cost of the business. Contribution margin per unit = Selling price per unit - variable cost per unit The difference between the selling price and variable cost is the contribution margin that a company earns. Fixed cost is divided by the contribution margin per unit in break even formula in order to find out the number of units that must be sold by the company in order to reach breakeven volume.

Solution Summary: The author explains how CVP or Cost Volume Profit analysis is used to identify the impact of product cost and sales volume on the business's operating profit.

EBK HEALTHCARE FINANCE: AN INTRODUCTIO

EBK HEALTHCARE FINANCE: AN INTRODUCTIO

6th Edition

ISBN: 9781567938111

Author: Gapenski

Publisher: VST

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Distinguish between Contribution Margin and Break-Even Volume?

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Chapter 5 Solutions

EBK HEALTHCARE FINANCE: AN INTRODUCTIO

Ch. 5.1 - Prob. 1.1STQ Ch. 5.1 - Prob. 1.2STQ Ch. 5.1 - Prob. 1.3STQ Ch. 5.1 - Prob. 2.1STQ Ch. 5.1 - Prob. 2.2STQ Ch. 5.1 - Prob. 2.3STQ Ch. 5.1 - Prob. 2.4STQ Ch. 5 - Prob. 1.1STQ Ch. 5 - Prob. 1.2STQ Ch. 5 - Prob. 2.1STQ

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