Dragon Sports Inc. manufactures and sells two products, baseball bats and baseball gloves. The fixed costs are $580,000, and the sales mix is 40% bats and 60% gloves. The unit selling price and the unit variable cost for each product are as follows: Products Unit Selling Price Unit Variable Cost Bats $70 $50 Gloves 180 110 a. Compute the break-even sales (units) for both products combined. fill in the blank 1 units b. How many units of each product, baseball bats and baseball gloves, would be sold at break-even point? Baseball bats fill in the blank 2 units Baseball gloves fill in the blank 3 units
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.
Dragon Sports Inc. manufactures and sells two products, baseball bats and baseball gloves. The fixed costs are $580,000, and the sales mix is 40% bats and 60% gloves. The unit selling price and the unit variable cost for each product are as follows:
| Products | Unit Selling Price | Unit Variable Cost | ||
| Bats | $70 | $50 | ||
| Gloves | 180 | 110 |
a. Compute the break-even sales (units) for both products combined.
fill in the blank 1 units
b. How many units of each product, baseball bats and baseball gloves, would be sold at break-even point?
| Baseball bats | fill in the blank 2 units |
| Baseball gloves | fill in the blank 3 units |
Break-even analysis is a technique widely used by the production department. It helps to determine the units to be sold to recover the total cost. It also helps to set the price of the product. Break-even analysis includes contribution margin, break-even, profit volume ratio, etc.
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