Concept Introduction:
Cost Volume Profit (CVP) Analysis:
The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.
Contribution margin means the margin that is left with the company after recovering variable cost out of revenue earned by selling smart phones. The formula for contribution margin is as follows:
Contribution margin = Sales - Variable cost.
Similarly contribution margin ratio = Contribution/sales
Breakeven Point:
The Breakeven point is the level of sales at which the net profit is nil. It can be explained as a situation where the business is generating a sale that is equal to the expenses incurred and hence no
Weighted Average Contribution Margin:
Weighted Average Contribution Margin is calculated for two products with the help of following formula:
Requirement-a:
To Calculate:
The Overall Breakeven Sales unit
Answer to Problem 11.20E
The Overall Breakeven Sales unit is 36,000 Units
Explanation of Solution
The Overall Breakeven point in units is calculated as follows:
| Game Players | Tablets | Overall | |
| Unit Selling Price (A) | $ 50 | $ 120 | |
| Unit Variable Cost (B) | $ 30 | $ 80 | |
| Unit Contribution Margin (C) =(A-B) | $ 20 | $ 40 | |
| Sales Mix (D) | 70% | 30% | |
| Weighted Average Contribution Margin per unit (E) = (C*D) | $ 14 | $ 12 | $ 26 |
| Total Fixed Cost (F) | $ 936,000 | ||
| Overall Breakeven point (units) (G) = (F/E) | 36,000 |
Concept Introduction:
Cost Volume Profit (CVP) Analysis:
The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.
Contribution margin means the margin that is left with the company after recovering variable cost out of revenue earned by selling smart phones. The formula for contribution margin is as follows:
Contribution margin = Sales - Variable cost.
Similarly contribution margin ratio = Contribution/sales
Breakeven Point:
The Breakeven point is the level of sales at which the net profit is nil. It can be explained as a situation where the business is generating a sale that is equal to the expenses incurred and hence no profits no loss. Breakeven point in units is calculated with the help of following formula:
Weighted Average Contribution Margin:
Weighted Average Contribution Margin is calculated for two products with the help of following formula:
Requirement-b:
To Calculate:
The Breakeven Sales unit for each product
Answer to Problem 11.20E
The Breakeven Sales unit for each product is as follows:
| Game Players | Tablets | |
| Breakeven point (units) | 25200 | 10800 |
Explanation of Solution
The Breakeven Sales unit for each product is calculated as follows:
| Game Players | Tablets | Overall | |
| Unit Selling Price (A) | $ 50 | $ 120 | |
| Unit Variable Cost (B) | $ 30 | $ 80 | |
| Unit Contribution Margin (C) =(A-B) | $ 20 | $ 40 | |
| Sales Mix (D) | 70% | 30% | |
| Weighted Average Contribution Margin per unit (E) = (C*D) | $ 14 | $ 12 | $ 26 |
| Total Fixed Cost (F) | $ 936,000 | ||
| Overall Breakeven point (units) (G) = (F/E) | 36,000 | ||
| Breakeven point (units) (H) =(G*D) | 25200 | 10800 |
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