HASF Corporation began operations at the beginning of the current year. one of the year company product a compressor sells for 370 per unit’s information related to the current year activities follows Variable cost per unit Direct material 40 Direct labor 74 Manufacturing overhead 96 Annual fixed cost Manufacturing cost 1,200,000 Selling and administrative 1,720,000 Sales and production Sales in units 20,000 Production 24,000 Required - Cost of the December 31 finished goods inventory Net income for the current year Dec 31 If next year production decrease to 22,500 units and general cost behavior patterns do not change what is the likely effect on • The direct labor cost of 74 per units? why? • The fixed manufacturing overhead of 1,200,000? why? • The fixed selling and administrative cost of1,7200,000? why? • Per unit cost production why?
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.
HASF Corporation began operations at the beginning of the current year. one of the year company product a compressor sells for 370 per unit’s information related to the current year activities follows
Variable cost per unit
Direct material 40
Direct labor 74
Manufacturing overhead 96
Annual fixed cost
Selling and administrative 1,720,000
Sales and production
Sales in units 20,000
Production 24,000
Required -
Cost of the December 31 finished goods inventory
Net income for the current year Dec 31
If next year production decrease to 22,500 units and general cost behavior patterns do not change what is the likely effect on
• The direct labor cost of 74 per units? why?
• The fixed manufacturing overhead of 1,200,000? why?
• The fixed selling and administrative cost of1,7200,000? why?
• Per unit cost production why?
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