Larkspur Company reports the following costs and expenses in May. Factory utilities $16,000 Direct labor $72,080 Depreciation on factory equipment 13,120 Sales salaries 47,920 Depreciation on delivery trucks 4,240 Property taxes on factory building 2,600 Indirect factory labor 51,120 Repairs to office equipment 1,400 Indirect materials 83,840 Factory repairs 2,080 Direct materials used 143,680 Advertising 15,600 Factory manager’s salary 8,800 Office supplies used 2,710 From the information:
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.
Larkspur Company reports the following costs and expenses in May.
|
Factory utilities
|
$16,000 |
Direct labor
|
$72,080 | |||
|---|---|---|---|---|---|---|
|
|
13,120 |
Sales salaries
|
47,920 | |||
|
Depreciation on delivery trucks
|
4,240 |
Property taxes on factory building
|
2,600 | |||
|
Indirect factory labor
|
51,120 |
Repairs to office equipment
|
1,400 | |||
|
Indirect materials
|
83,840 |
Factory repairs
|
2,080 | |||
|
Direct materials used
|
143,680 |
Advertising
|
15,600 | |||
|
Factory manager’s salary
|
8,800 |
Office supplies used
|
2,710 |
From the information:
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