Own sub unit of winter sport company had the following financial results last month: Monthly Performance Report Product actual budgeted variance variance percentage Sales 545,000 500,000 Less variable expenses 387,000 375,000 Contribution margin 158,500 125,000 Less direct fixed expenses 10,380 10,000 Segment margin 148,120 115,000 Less common fixed expenses 52,000 40,000 Operating income 96,120 75,000 Required: Using balance scorecard perspective, evaluate the performance of this subunit.
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.
Own sub unit of winter sport company had the following financial results last month:
Monthly Performance Report
| Product | actual | variance | variance percentage | |
| Sales | 545,000 | 500,000 | ||
| Less variable expenses | 387,000 | 375,000 | ||
| Contribution margin | 158,500 | 125,000 | ||
| Less direct fixed expenses | 10,380 | 10,000 | ||
| Segment margin | 148,120 | 115,000 | ||
| Less common fixed expenses | 52,000 | 40,000 | ||
| Operating income | 96,120 | 75,000 |
Required:
Using balance scorecard perspective, evaluate the performance of this subunit.
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