5. The Goldielocks company produces 3 products - Hot Product, Cold Product, Just Right Product. The variable expenses and sales price of all the products are given below: Hot Prod. Cold Prod. Just Right Prod. $50 Sale price per unit Variable exp per unit $ 200 $ 100 $ 100 $ 75 $25 The total fixed expenses of the company are $50,000 per month. For the coming month, Goldielocks expects the sale of the 3 products to be in the following ratio: Hot Product - 20% Cold Product - 30% Just Right Product - 50% Compute the following: Weighted-average contribution margin? a. How many total products must Goldielocks sell to break-even? How many of each product must Goldielocks sell to break-even? d. How much revenue will Goldielocks earn with this sales mix?
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
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