Concept explainers
Concept introduction:
Cost Volume Profit (CVP) Analysis:
The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.
Contribution margin means the margin that is left with the company after recovering variable cost out of revenue earned by selling smart phones. The formula for contribution margin is as follows:
Contribution margin = Sales - Variable cost.
Similarly contribution margin ratio = Contribution/sales
Breakeven Point:
The Breakeven point is the level of sales at which the net profit is nil. It can be explained as a situation where the business is generating a sale that is equal to the expenses incurred and hence no
To prepare:
The Contribution Margin Income Statement
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Managerial Accounting
- average variable cost (cost price) is SAR 9. Thus, every time the store sells a toy car it has SAR A Toy store sells remote control car. The average selling price is SAR 15 and the o remaining after it pays the manufacturer. This SAR 6 is referred to as the unit contribution. The fixed costs of operating the store (its operating expenses) are SAR 100,000 per year. If the total sales units are 20,000. Prepare the Income statement in contribution margin a. format. b. The fixed costs of operating the store (its operating expenses) are SAR100, 000 per year. Find Break-even in units? If the owner desired a profit of SAR 25,000, what will be break-even point in SAR? с.arrow_forwardVaughn Candle Supply makes candles. The sales mix (as a percentage of total dollar sales) of its three product lines is birthday candle 30%, standard tapered candles 50%, and large scented candle 20%. The contribution margin ratio of each candle type is shown below. Candle Type Contribution Margin Ratio Birthday 20% Standard tapered 30% Large scented 40% a/ What is the weighted-average contribution margin ratio? b/ If the company’s fixed costs are 450,080 per year, what is the dollar amount of each type of candle that must be sold to break even?arrow_forwardContribution Margin Ratio, Break-Even Sales Revenue, Sales Revenue for Target Profit Schylar Pharmaceuticals, Inc., plans to sell 120,000 units of antibiotic at an average price of $25 each in the coming year. Total variable costs equal $960,000. Total fixed costs equal $7,200,000. Required: 1. What is the contribution margin per unit? Round your answer to the nearest cent. What is the contribution margin ratio? Round your answer to two decimal places. (Express as a decimal-based answer rather than a whole percent amount.) fill in the blank 2 2. Calculate the sales revenue needed to break even. Round your answer to the nearest dollar. 3. Calculate the sales revenue needed to achieve a target profit of $205,000. Round your answer to the nearest dollar. 4. What if the average price per unit increased to $26.50? Recalculate the following: a. Contribution margin per unit. Round your answer to the nearest cent. b. Contribution margin ratio. Enter your answer as a decimal value (not a…arrow_forward
- A jeans maker is designing a new line of jeans called Slams. Slams will sell for $315 per unit and cost $214.20 per unit in variable costs to make. Fixed costs total $66,000. (Round your answers to 2 decimal places.) 1. Compute the contribution margin per unit. Contribution margin 2. Compute the contribution margin ratio. Numerator: Denominator: 3. Compute Income if 6,200 units are produced and sold Income Contribution Margin Ratio Contribution margin ratio 0arrow_forwardHawk Homes, Ic., makes one type of birdhouse that it sells for $30.00 each. Its variable cost is $13.50 per house, and its fixed costs total $14,239.50 per year. Hawk currently has the capacity to produce up to 2,800 birdhouses per year, so its relevant range is 0 to 2,800 houses. Required: 1. Prepare a contribution margin income statement for Hawk assuming it sells 1,110 birdhouses this year. 2. Without ancaleuletione, detonmine llawks total contribution morgin if the company breake 3. Сн 4. Calculate Hawk's break-even point in number of units and in sales revenue. 5. Suppose Hawk wants to earn $21,000 this year. Determine how many birdhouses it must sell to generate this amount of profit. O margm per umt Omarginatio. Answer is not complete. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Prepare a contribution margin income statement for Hawk assuming it sells 1,110 birdhouses this year. (Enter your answers…arrow_forwardHawk Homes, Ic., makes one type of birdhouse that it sells for $30.00 each. Its variable cost is $13.50 per house, and its fixed costs total $14,239.50 per year. Hawk currently has the capacity to produce up to 2,800 birdhouses per year, so its relevant range is 0 to 2,800 houses. Required: 1. Prepare a contribution margin income statement for Hawk assuming it sells 1,110 birdhouses this year. 2. Without any calculations, determine Hawk's total contribution margin if the company breaks even. 3. Calculate Hawk's contribution margin per unit and its contribution margin ratio. 4. Calculate Hawk's break-even point in number of units and in sales revenue. 5. Suppose Hawk wants to earn $21,000 this year. Determine how many birdhouses it must sell to generate this amount of profit. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Prepare a contribution margin income statement for Hawk assuming it sells 1,110 birdhouses…arrow_forward
- Hawk Homes, Inc., makes one type of birdhouse that it sells for $29.40 each. Its variable cost is $13.20 per house, and its fixed costs total $14,013.00 per year. Hawk currently has the capacity to produce up to 2,700 birdhouses per year, so its relevant range is 0 to 2,700 houses. Required:1. Prepare a contribution margin income statement for Hawk assuming it sells 1,280 birdhouses this year. 2. Without any calculations, determine Hawk’s total contribution margin if the company breaks even. 3. Calculate Hawk’s contribution margin per unit and its contribution margin ratio. 4. Calculate Hawk’s break-even point in number of units and in sales revenue. 5. Suppose Hawk wants to earn $25,000 this year. Determine how many birdhouses it must sell to generate this amount of profit.arrow_forwardSharp Company makes and sells pencil sharpeners. The variable cost of each sharpener is $20. The sharpeners are sold for $30 each. Fixed operating expenses amount to $40,000. a. Determine the break-even point in units and sales dollars. b-1. Determine the sales volume in units and dollars that is required to attain a profit of $12,000. b-2. Prepare an income statement using the contribution margin format to verify your answer. c. Determine the margin of safety between sales required to attain a profit of $12,000 and break-even sales.arrow_forwardHow many units will Cadre need to sell in order to realize a target profit of $300,000? Use commas as needed (i.e. 1,234). What dollar sales will Cadre need to generate in order to realize a target profit of $300,000? Rounded to whole dollars and shown with "$" and commas as needed (i.e. $12,345). Construct a contribution margin income statement for the month of November that reflects $2,400,000 in sales revenue for Cadre, Inc. Rounded to whole dollars and shown with "$" and commas as needed (i.e. $12,345). Cadre Inc. Contribution Margin Income Statement For the Month of Novemberarrow_forward
- Best Windows is a small company that installs windows. Its cost structure is as follows: Selling price from each window installation Variable cost of each window installation Annual fixed costs $ $ $ 160,000 Use (a) the equation method and (b) the contribution method to calculate operating income if Best installs 4,000 windows. Use (a) the Equation method to calculate operating income if Best installs 4,000 windows. Begin by determining the formula to calculate the operating income using the equation method. Then, calculate the operating income. (Abbreviation used: FC = Fixed costs, SP = Selling price, VCU = Variable cost per unit, Q = Quantity of units sold.) X X )-( )-( X X 700 600 X = Operating income = Next, use (b) the contribution method to calculate operating income if Best installs 4,000 windows. Begin by determining the formula to calculate the operating income using the contribution method. Then, calculate the operating income. = Operating incomearrow_forwardDetermining transfer pricing The Lin Company is decentralized, and divisions are considered investment centers. Lin has one division that manufactures oak dining room chairs with upholstered seat cushions. The Chair Division cuts, assembles, and finishes the oak chairs and then purchases and attaches the seat cushions. The Chair Division currently purchases the cushions for $18 from an outside vendor. The Cushion Division manufactures upholstered seat cushions that are sold to customers outside the company. The Chair Division currently sells 1,000 chairs per quarter and the Cushion Division is operating at capacity, which is 1,000 cushions per quarter. The two divisions report the following information: Chair Division Cushion Division Sales Price per Chair $ 90 Sales Price per Cushion $ 20 Variable Cost (other than cushion) 45 Variable Cost per Cushion 12 Variable Cost (cushion) 18 Contribution Margin per Chair $ 27 Contribution Margin per Cushion $ 8arrow_forwardDog Dandy distributes a dog collar made of wooden beads that sells for $40 per unit. Variable expenses are $20 per unit, and fixed expenses total $168,000 per year. Its operating results for last year were as follows: Sales Variable expenses Contribution margin Fixed expenses Operating income CM ratio Required: Answer each of the following independent questions based on the original data. 1. What is the product's CM ratio? Break-even point in dollar sales % 2. Use the CM ratio to determine the break-even point in dollar sales. Decrease in operating income 3. Assume this year's unit sales and total sales decrease by $54,000. If the fixed expenses do not change, how much will operating income decrease? Degree of operating leverage $560,000 280,000 4. What is the degree of operating leverage based on last year's sales? (Round your answer to 1 decimal place.) 280,000 168,000 $112,000 Decrease in operating income 5. Assume the this year's unit sales will decrease by 20% next year. Using the…arrow_forward
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