Your company has reviewed its new product that it introduced last year, and it has been found that the annual sales It amounts to (8,000) units, the unit selling price is (140) dinars, and annual fixed costs are (27,000) dinars and the variable cost of the unit (60) dinars. You are asked to answer the following, using an analysis Tie level at it: 1- What is the current break-even size, calculate it algebraically and graphically. 2- Calculate the profit under the current sales volume. 3- To what extent can the sales volume be increased if the company wants to achieve net profits that increase? (25%) of the profit achieved under the current prevailing situation, that is, in light of the current sales volume? 4- To what extent can fixed costs be reduced, if the company wants to achieve net profits that increase? (20) percent of the profit achieved under the current prevailing situation, that is, in light of the current sales volume?
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.
Your company has reviewed its new product that it introduced last year, and it has been found that the annual sales
It amounts to (8,000) units, the unit selling price is (140) dinars, and annual fixed costs are (27,000)
dinars and the variable cost of the unit (60) dinars. You are asked to answer the following, using an analysis
Tie level at it:
1- What is the current break-even size, calculate it algebraically and graphically.
2- Calculate the profit under the current sales volume.
3- To what extent can the sales volume be increased if the company wants to achieve net profits that increase?
(25%) of the profit achieved under the current prevailing situation, that is, in light of the current sales volume?
4- To what extent can fixed costs be reduced, if the company wants to achieve net profits that increase?
(20) percent of the profit achieved under the current prevailing situation, that is, in light of the current sales volume?
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