Luminous Company provided the following information at current year-end: Finished goods in storeroom, at cost including overhead of P400,000 2,000,000 Finished good in transit, including freight charge of P20,000, FOB shipping point 250,000 Finished goods held by salesmen, at selling price, cost P100,000 140,000 Goods in process, at cost of materials and direct labor
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.
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Luminous Company provided the following information at current year-end: |
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Finished goods in storeroom, at cost including overhead of P400,000 |
2,000,000 |
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Finished good in transit, including freight charge of P20,000, FOB shipping point |
250,000 |
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Finished goods held by salesmen, at selling price, cost P100,000 |
140,000 |
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Goods in |
720,000 |
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Materials |
1,000,000 |
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Materials in transit, FOB destination |
50,000 |
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Defective materials returned to suppliers for replacement |
100,000 |
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Shipping supplies |
20,000 |
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Gasoline and oil for testing finished goods |
110,000 |
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Machine lubricants |
60,000 |
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Required: |
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Compute cost of inventory at current year-end: |
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