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
Degree of operating leverage:
The Degree of operating leverage shows the relation between change in net operating income and change in sales. The formulas for degree of operating leverage are as follows:
To calculate:
The Degree of operating leverage
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Managerial Accounting
- Tom Company reports the following data: Sales Variable costs Fixed costs Determine Tom Company's operating leverage. Round your answer to one decimal place. $156,332 81,532 30,800arrow_forwardThe XYZ Company produces and sells two products: The Riffs and The Raffs. Below is revenue and cost information to facilitate the development of a basic segmented income statement. Product Riffs Raffs Sales Price per unit $8.00 6.00 Variable Cost per unit $3.20 3.00 Traceable Fixed Costs $62,000 $44,000 It is expected that the company will incur $21,000 of common fixed expenses and unit sales are expected to be 12,000 of Riffs and 18,000 of Raffs. Required: Construct a Contribution Format Income Statement segmented by product line and company total.arrow_forwardMegacorp and Gadgetron are two competing gadget manufacturers. Information about the price and cost structures of the two manufacturers are given below. Megacorp Gadgetron Selling price per unit 160 160 Variable cost per unit 110 80 Fixed cost per month 46,000 100,000 Required: Calculate the sales volume that will result in Megacorp and Gadgetron having the same operating profit. Prepare a profit-volume graph by plotting profit as a function of the sales volume.Hint: Identify the point where sales volume is zero (i.e., fixed cost on y-intercept) and the break-even point (i.e., x-intercept where profit is zero) and connect the dots.arrow_forward
- Assume the following data for Mother Earth LLC: Unit Selling Price $ 230.00 Unit Variable Cost $ 145.00 Fixed Cost $ 62,500.00 Target Profit $ 120,000.00 A) Calculate the unit contribution margin ANS: $ B) How many units must be sold to attain an operating income (Target Profit) of $120,000? ANS:UNITS Break Even Point Units C) Calculate the number of units that must be sold to break-even. Round to the nearest unit. ANS: UNITS Break Even Point Dollar's D) Calculate how much money in Sales must be generated to break-even. ANS: $arrow_forwardVoice Com, Inc., uses the product cost method of applying the cost - plus approach to product pricing. The costs of producing and selling 5,000 units of cell phones are as follows:Voice Com desires a profit equal to a 13% rate of return on invested assets of $600, 800.a. Determine the amount of desired profit from the production and sale of 5,000 units of cell phones.Sfill in the blank 1b. Determine the product cost per unit for the production of 5,000 of cell phones. If required, round your answer to nearest dollar.Sfill in the blank 2 per unitc. Determine the product cost markup percentage (rounded to two decimal places) for cell phones.fill in the blank 3 %d. Determine the selling price of cell phones. Round to the nearest dollar.arrow_forwardSpectrum Corp. makes two products: C and D. The following data have been summarized: (Click the icon to view the data.) Spectrum Corp. desires a 25% target gross profit after covering all product costs. Considering the total product costs assigned to the Products C and D, what would Spectrum have to charge the customer to achieve that gross profit? Round to two decimal places. Begin by selecting the formula to compute the amount that the company should charge for each product. Required sales price per unit Data table Direct materials cost per unit Direct labor cost per unit Indirect manufacturing cost per unit Total costs assigned Print $ $ Product C 600.00 $ 300.00 270.00 1,170.00 S Done - X Product D 2,400.00 200.00 604.00 3,204.00arrow_forward
- Mark Pro produces and sells a single product. Information on its costs follow: Variable costs: SG&A P2 per unit Production P4 per unit Fixed costs: SG&A P12,000 per year Production P15,000 per year 1. Refer to Mark Pro. Assume Mark Pro produced and sold 5,000 units. At this level of activity, it produced a profit of P18,000. What was Mark Pro sales price per unit? 2. Refer to Mark Pro. In the upcoming year, Mark Pro estimates that it will produce and sell 4,000 units. The variable costs per unit and the total fixed costs are expected to be the same as in the current year. However, it anticipates a sales price of P16 per unit. What is Mark Pro 's projected margin of safety for the coming year?arrow_forwardA firm has fixed costs of $25,000 associated with the manufacture of lawn mowers that cost $480 per mower to produce. The firm sells all the mowers it produces at $580 each. Find the cost, revenue and profit equations. Find the break-even quantity. (Let x be the number of mowers.)C(x) = R(x) = P(x) = break even quantity= ? mowersarrow_forwardCullumber Company makes three models of tasers. Information on the three products is given below. Sales Variable expenses Contribution margin Fixed expenses Net income (a) Net income $ (b) Shocker Net Income Tingler $300,000 $500,000 Tingler Net Income $ Total Net Income (c) Why or why not? Compute current net income for Cullumber Company. ta Net income would 151,400 148,600 $ 119,400 S $29,200 Fixed expenses consist of $298,000 of common costs allocated to the three products based on relative sales, as well as direct fixed expenses unique to each model of $30,000 (Tingler), $80,800 (Shocker), and $34,300 (Stunner). The common costs will be incurred regardless of how many models are produced. The direct fixed expenses would be eliminated if that model is phased out. James Watt, an executive with the company, feels the Stunner line should be discontinued to increase the company's net income. Shocker 197,000 303,000 229,800 $73,200 Compute net income by product line and in total for…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. Required: 1. What is the product's CM Ratio?2. Use the CM ratio to determine the break-even point in sales pesos.arrow_forwardBurnem Inc. manufactures thumb drives and sells them to a distributor. Burnem's total cost and total revenue (in dollars) for x thumb drives are given by the following equations. Total cost = 6(x + 4716) and Total revenue = 15x (a) How many thumb drives must Burnem sell to break even? X = thumb drives (b) What is the selling price of each item? $ (c) What are the fixed costs? $ (d) What is the marginal profit per item? $arrow_forwardProfit Functions A company has a fixed cost of $26,000 and a production cost of $5 for each unit it manufactures. A unit sells for $10. Find the following functions (in dollars). (a) What is the cost function? C(x) = (b) What is the revenue function? R(x) = (c) What is the profit function? P(x) = (d) Compute the profit (loss), in dollars, corresponding to the following production levels. P(5,500) =$ P(8,800) =$ P(12,100) =$arrow_forward
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College