(a)
Cost Volume Profit (CVP) Income Statement: The income statement, which highlights the behavior of variable costs and fixed costs and shows the benefit given by each unit of goods produced is called as cost volume profit income statement. It is important for the firm as it helps in making various financial and investment decisions.
To Prepare: A CVP (Cost Volume Profit) income statement based on current activity.
(b)
Contribution Margin ratio:
The contribution margin ratio shows the amount of difference in the actual sales value and the variable expenses in percentage. This margin indicates that percentage which is available for sale above the fixed costs and the profit.
To Determine: Contribution margin ratio, break-even point in dollars, margin of safety ratio, and degree of operating leverage, under current policy.
(c)
Cost Volume Profit (CVP) Income Statement: The income statement, which highlights the behavior of variable costs and fixed costs and shows the benefit given by each unit of goods produced is called as cost volume profit income statement. It is important for the firm as it helps in making various financial and investment decisions.
To Prepare: A CVP (Cost Volume Profit) income statement, assuming that the company invests in the automated upholstery system.
(d)
Contribution Margin ratio:
The contribution margin ratio shows the amount of difference in the actual sales value and the variable expenses in percentage. This margin indicates that percentage which is available for sale above the fixed costs and the profit.
To Determine: Contribution margin ratio, break-even point in dollars, margin of safety ratio, and degree of operating leverage, under current policy.
(e)
Break-Even Point:
It is the point of sales at which entity neither earns a profit nor suffers a loss. It can also be said that the point of sales at which sales value of the entity recovers the entire cost of fixed and variable nature is called break-even point.
To Discuss: The implications of adopting new system.
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