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
Margin of Safety:
Margin of safety is sales over and above the breakeven level. Margin of safety can be calculated as dollar amount and in units as follows:
To calculate:
The Margin of Safety and Margin of Safety as % of sales
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Managerial Accounting
- Margin of Safety a. If Canace Company, with a break-even point at $401,800 of sales, has actual sales of $490,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales? Round the percentage to the nearest whole number. 1. $___________ 2. ____________% b. If the margin of safety for Canace Company was 45%, fixed costs were $1,648,350, and variable costs were 55% of sales, what was the amount of actual sales (dollars)?(Hint: Determine the break-even in sales dollars first.)$___________arrow_forwardConsider the following information for a given business. Sale revenue =GHS40,000 VC per unit =GHS20 Activity level =1,000 to break even Required: 1. Determine the TFC 2. Express the contribution as a percentage of sale. 3. The company plans to sale 1,500 unit in the next period. What will be the percentage margin of safety (MoS) 4. What margin should the business employ for planning purposes? 5. What total profit should the business expect in order to achieve it's planned sales?arrow_forwardCubie Corporation has provided the following data concerning its only product Selling price $ 104 per unit Current sales 9,300 units 6,789 units Break-even sales What is the margin of safety in dollars?arrow_forward
- Cyan Corporation has provided the following data concerning its only product: Selling price $ 90 per unit Current sales 11,600 units Break-even sales 10,324 units What is the margin of safety in dollars?arrow_forwardCourse Dragon, Inc. has actual sales of $310,000 and a margin of safety of $136,400. What is Dragon's break-even point in sales? 19 Mut cholce $37,200 $173.600 $210,800 $248,000arrow_forwardQuestion - 2: Calculate 'Margin of Safety' from the following data: Particulars Mary & Co. Geetha& Co. Sales 1,00,000 1,00,000 Cost 80,000 80,000 Fixed - Mary & Co. 30,000 Geetha & Co. 50,000 Variable - Mary & Co. 50,000 Geetha & Co. 30,000 Profit 20,000 20,000arrow_forward
- Question 3: CRS Company’s financial information is given in the table below. Year Sales (OMR) Fixed Costs Variable Costs 2019 405000 90000 225000 2020 450000 120000 240000 Calculate: P/V ratio, E.P. Sales required to earn a profit of OMR 40000. Margin of safety at a profit of OMR 50000 Profit when sales are OMR. 200000.arrow_forwardUse the following information about Rat Race Home Security, Inc. to answer the questions: Average selling price per unit $327. Variable cost per unit $181 Units sold 431 Fixed costs $7,486 Interest expense $12,408 Based on the data above, what is the degree of financial leverage of Rat Race Home Security, Inc.?arrow_forwardMargin of Safety The Rachel Company has sales of $550,000, and the break-even point in sales dollars is $368,500. Determine the company's margin of safety as a percent of current sales.arrow_forward
- Chart included in screenshot as well as prior analysis** CVP analysis is used to analyze the effects of changes in selling prices, costs and volume on profits. It is also used to determine target profit, the margin of safety, operating leverage, product mix and choosing among marketing strategies and others. Suppose Byron management has a target operating income of $3,000. Assume the same costs as above and the sell price remains at $24 per unit. 1. How many units does Byron need to sell to meet this goal? _______ units 2. What is Byron's margin of safety in sales and in units when Byron sells 730 units? Margin of safety in sales $_________ Margin of safety in units ________ units 3. What is the degree of operating leverage when 730 units are sold? If required, round your answer to two decimal places. ___________arrow_forwardQuestion 3: Sohar Company’s financial information is given in the table below. Year Sales (OMR) Fixed Costs Variable Costs 2019 405000 90000 225000 2020 450000 120000 240000 Calculate: Margin of safety at a profit of OMR 50000 Profit when sales are OMR. 200000.arrow_forwardAccounting Galla Incorporated is a competitive product market. The expected selling price is $340 per unit, and Galla’s target profit is 20% of the selling price. Using the target cost method, the highest that Galla’s cost per unit can be is: Multiple Choice $208. $192. $264. $68. $272.arrow_forward
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