Aladin Company Manufactures small battery that is used in clocks, toys and some other electronic devices. The last month’s income statement of Aladin is given below: Total Per Unit Sales (30,000 batteries) $300,000 $10 Less variable expenses $180,000 $6 Contribution Margin $120,000 $4 Fixed expenses $100,000 Net operating income $20,000 Required: Prepare Aladin's new income statement under each of the following conditions: 1. The sales colume increase by 15%. 2. The selling price decreases by 20% per unit, and the sales volume increase by 30%. 3. The selling price increases by 50% per unit, fixed expenses increase by $20,000 and the sales volume decreases by 5%. 4. Variable expenses increases by 20% per unit, the selling price increase by 12%, and the sales volume decrease by 10%.
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.
- Aladin Company Manufactures small battery that is used in clocks, toys and some other electronic devices. The last month’s income statement of Aladin is given below:
|
|
Total |
Per Unit |
|
|
|
|
|
|
|
|
Sales (30,000 batteries) |
$300,000 |
$10 |
|
|
|
|
|
|
|
|
Less variable expenses |
$180,000 |
$6 |
|
|
|
|
|
|
|
|
Contribution Margin |
$120,000 |
$4 |
|
|
|
|
|
|
|
|
Fixed expenses |
$100,000 |
|
|
|
|
|
|
|
|
|
Net operating income |
$20,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Required: |
|
|
|
|
|
|
|
|
|
|
Prepare Aladin's new income statement under each of the following conditions: |
|
|
|
|
|||||
|
1. The sales colume increase by 15%. |
|
|
|
|
|
|
|
|
|
|
2. The selling price decreases by 20% per unit, and the sales volume increase by 30%. |
|
|
|
||||||
|
3. The selling price increases by 50% per unit, fixed expenses increase by $20,000 and the sales volume decreases by 5%. |
|||||||||
|
4. Variable expenses increases by 20% per unit, the selling price increase by 12%, and the sales volume decrease by 10%. |
Step by step
Solved in 5 steps
