DELECTABLE DONUTS Contribution Margin Income Statement Month Ended May 31, 2018 Net Sales Revenue $ 125,000 Variable Costs: Cost of Goods Sold $ 32,100 Selling Costs 17,400 Administrative Costs 500 50,000 Contribution Margin 75,000 Fixed Costs: Selling Costs 37,800 Administrative Costs 12,600 50,400 Operating Income $ 24,600
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.
Calculating breakeven point for two products, margin of safety, and operating leverage
The contribution margin income statement of Delectable Donuts for May 2018 follows:
Delectable sells five dozen plain donuts for every dozen custard-filled donuts. A dozen plain donuts sells for $4.00, with a variable cost of $1.60 per dozen. A dozen custard-filled donuts sells for $8.00, with a variable cost of ‘$3.20 per dozen.
Requirements
- Calculate the weighted—average contribution margin.
- Determine Delectable’s monthly breakeven point in dozens of plain donuts and custard-filled donuts. Prove your answer by preparing a summary contribution margin income statement at the breakeven level of sales. Show only two categories of costs: variable and fixed.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
