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 calculate:
The Contribution Margin per unit and Contribution margin ratio
Want to see the full answer?
Check out a sample textbook solutionChapter 6 Solutions
Managerial Accounting
- Sales Needed to Earn Target Income Chillmax Company plans to sell 3,500 pairs of shoes at 60 each in the coming year. Variable cost is 35% of the sales price; contribution margin is 65% of the sales price. Total fixed cost equals 78,000 (includes fixed factory overhead and fixed selling and administrative expense). Required: 1. Calculate the sales revenue that Chillmax must make to earn operating income of 81,900 by using the point in sales equation. 2. Check your answer by preparing a contribution margin income statement based on the sales dollars calculated in Requirement 1.arrow_forwardSuper Sales Company is the exclusive distributor for a high-quality knapsack. The product sells for $100 per unit and has a CM ratio of 40%. The company's fixed expenses are $459,000 per year. The company plans to sell 12,000 knapsacks this year. Required: 1. What are the variable expenses per unit? Variable expenses per unit 2. Use the equation method for the following: a. What is the break-even point in units and in sales dollars? Break-even point in units Break-even point in sales dollars b. What sales level in units and in sales dollars is required to earn an annual profit of $99,000? Sales in units Sales in dollars c. What sales level in units is required to earn an annual after-tax profit of $99,000 if the tax rate is 25%? Sales in units d. Assume that through negotiation with the manufacturer, Super Sales Company is able to reduce its variable expenses by $5 per unit. What is the company's new break-even point in units and in sales dollars? (Do not round intermediate…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_forward
- Shalom Company manufactures socks that sell for P60 each. For the coming year, the management estimates fixed costs to be P200,000 and variable costs to be P45 per unit. 1 What is Shalom Company's contribution margin ratio? 2 If the actual sales during the period was P750,000, did the company earn profit or incur loss? Use the underlined words in capital letters as your choice. 3 If in the following period, Shalom Company wants to earn profit of P180,000, how many units should Shalom Company sell?arrow_forwardSuper Sales Company is the exclusive distributor for a high-quality knapsack. The product sells for $100 per unit and has a CM ratio of 40% The company's fixed expenses are $459,000 per year. The company plans to sell 12,000 knapsacks this year. Required: 1. What are the variable expenses per unit? Variable expenses per unit 2. Use the equation method for the following e. What is the break-even point in units and in sales dollars? Break-even point in units Break-even point in sales dollars b. What sales level in units and in sales dollars is required to earn an annual profit of $99,000? Sales in units Sales in dollars c. What sales level in units is required to earn an annual after-tax profit of $99,000 if the tax rate is 25%? Sales in units d. Assume that through negotiation with the manufacturer, Super Sales Company is able to reduce its variable expenses by $5 per unit. What is the company's new break-even point in units and in sales dollars? (Do not round Intermediate calculations.…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
- Tiktok Company distributes a lightweight lawn chair that sell for P150 per unit. Variable costs are P60 per unit, and fixed costs total P1,800,000 annually. The company estimates that sales will increase by P450,000 during the coming year due to increased demand. Required: By how much should net income increase?arrow_forwardCalculating breakeven point in units, contribution margin has given Mackler, Inc. sells a product with a contribution margin of $50 per unit. Fixed costs are $8,000 per month. How many units must Mackler sell to break even?arrow_forwardMcKnight Company sells flags with team logos. McKnight has fixed costs of $180,000 per year plus variable costs of $4.00 per flag. Each flag sells for $10.00. Read the requirements LOADING... . Requirement 1. Use the equation approach to compute the number of flags McKnight must sell each year to break even. First, select the formula to compute the required sales in units to break even. - - = Target profit Requirements 1. Use the equation approach to compute the number of flags McKnight must sell each year to break even. 2. Use the contribution margin ratio approach to compute the dollar sales McKnight needs to earn $18,000 in operating income for the year. (Round the contribution margin ratio to two decimal places.) 3. Prepare McKnight's contribution margin income statement for the year ended December 31, for sales of 23,000 flags. (Round your final answers up to the next whole number.) 4. The company…arrow_forward
- Super Sales Company is the exclusive distributor for a high-quality knapsack. The product sells for $80 per unit and has a CM ratio of 40%. The company's fixed expenses are $360,000 per year. The company plans to sell 13,000 knapsacks this year. Required: 1. What are the variable expenses per unit? Variable expenses per unit 2. Use the equation method for the following: a. What is the break-even point in units and in sales dollars? Break-even point in units Break-even point in sales dollarsarrow_forwardContribution Margin Ratio, Break-Even Sales Revenue, Sales Revenue for Target Profit Schylar Pharmaceuticals, Inc., plans to sell 110,000 units of antibiotic at an average price of $18 each in the coming year. Total variable costs equal $712,800. Total fixed costs equal $7,300,000. 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.) 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 $215,000. Round your answer to the nearest dollar. 4. What if the average price per unit increased to $19.50? 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 percentage), rounded to…arrow_forwardA 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_forward
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning