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
Margin of Safety:
Margin of safety is sales over and above the breakeven level. Margin of safety can be calculated as dollar amount and in units as follows:
To Indicate:
The reason to question the validity of the given data
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Chapter 11 Solutions
SURVEY OF ACCOUNTING W/ACCESS >BI<
- The auditor worked for this client for years. But before accepting or continuing with the client what factors should the auditor consider looking at the given information below? The client: Although client cash flows have been stable, the disruption caused by the 2020 global pandemic made it difficult for retail lessors to pay their rent on time. Due to the company's tenant-friendly approach, retail clients were allowed to renegotiate their lease and temporarily pause rent payments between June 2020 and July 2021, shifting those payments to the last 12 months. Most of these leases will expire in the next two years, including all retail companies unable to pay their rent. However, they estimate that they will receive all the lost cash flow from these tenants within a couple of years. Currently, the company is a privately held REIT that hopes to go public in the next six months. It follows Generally Accepted Accounting Principles (GAAP) and has a strong internal audit department. As a…arrow_forwardQuestion When the FASB issues new standards, the implementation date is frequently 12 months from date of issuance, and early implementation is encouraged. Becky Hoger, controller, discusses with her financial vice president the need for early implementation of a standard that would result in a fairer presentation of the Company’s financial condition and earnings. When the financial vice president determines that early implementation of the standard will adversely affect the reported net income for the year, he discourages Hoger from implementing the standard until it is required. Required: a. What, if any, ethical issue is involved in this case? b. Is the financial vice president acting improperly or immorally? c. What does Hoger have to gain by advocacy of early implementation? d. Who might be affected by the decision against early implementation? (CMA adapted)arrow_forwardKrall Company recently had a computer malfunction and lost a portion of its accounting records. The company has reconstructed some of its financial performance measurements including components of the return on investment calculations.Required:Help Krall rebuild its information database by completing the following table: (Do not round your intermediate calculations. Round your final answers to 2 decimal places, (i.e. 0.1234 should be entered as 12.34%.).)arrow_forward
- The auditor worked for this client for years. But before accepting or continuing with the client, What are the reasons the auditor or audit firm should or should not retain this existing client this time around using the information below about the client? What risks could the client, its business, and its environment pose to the auditor or audit firm? The client: Although client cash flows have been stable, the disruption caused by the 2020 global pandemic made it difficult for retail lessors to pay their rent on time. Due to the company's tenant-friendly approach, retail clients were allowed to renegotiate their lease and temporarily pause rent payments between June 2020 and July 2021, shifting those payments to the last 12 months. Most of these leases will expire in the next two years, including all retail companies unable to pay their rent. However, they estimate that they will receive all the lost cash flow from these tenants within a couple of years. Currently, the company is a…arrow_forwardFor each situation listed below, select the appropriate inherent risk factor that is demonstrated. Each inherent risk factor can be used once, more than once, or not at all. a. A client is estimating an amount that may be owed pending the outcome of a lawsuit that may take several years to resolve. Estimation uncertainty b. Management hires a specialist to assist with determining the value of an inventory of precious gemstones. Complexity C. Due to a global pandemic, the airline industry is experiencing unprecedented disruption of normal business operations. Subjectivity d. Management is estimating the fair value for a derivative financial instrument that is not traded on a public market. e A client must derive a future interest rate by using interpolation techniques from forward interest rates. Barrow_forwardState the accounting assumption, principle, qualitative characteristic, constraint or violation that is most applicable in the following cases. (examples of the answer: Faithful representation, Completeness, etc). COVID Co. could disseminate its annual financial statements three days earlier if it shifted substantial human resources from other operation to the annual report project. Management decided the value of the earlier report was not worth the added commitment of resources. Answer:arrow_forward
- Risks can arise or change due to circumstances such as the following, except: * The company switched from manual information systems to a computerized system. There is a change in the regulatory or operating environment. The accounting and financial reporting framework has experienced significant revisions. No new employees have been hired by the company.arrow_forwardJohn Austin's firm advertises its past performance record by showing the 15-year return history of a composite of its client accounts. The description of the composite on the advertisement states that ALL client accounts are included when calculating the composite return. Austin discovers, however, that the composite omits the performance of accounts that have left the firm during the 15-year period. This omission has led to an inflated performance figure. Austin's supervisor has made it clear that Austin is expected to use promotional material when soliciting business for the firm. Austin should (Choose the best answer.) O (No answer given) continue to use the promotional material as his supervisor expects him to do so. O leave the firm. O bring the error to the attention of his supervisor and the firm's compliance department. O say nothing as he did not calculate the performance himself.arrow_forwardConsultants notified management of Goo Goo Baby Products that a crib toy poses a potential health hazard.Counsel indicated that a product recall is probable and is estimated to cost the company $5.5 million. How willthis affect the company’s income statement and balance sheet this period?arrow_forward
- Which of the following conditions most likely would pose the greatest risk in accepting a new audit engagement?a. Staff will need to be rescheduled to cover this new client.b. There will be a client-imposed scope limitation.c. The firm will have to hire a specialist in one audit area.d. The client’s financial reporting system has been in place for 10 years.arrow_forwardWhen the IASB issues new standards, the implementation date is usually twelve months from the date of issuance, with early implementation encouraged. Becky Hoger, a controller, discusses with her financial vice president the need for early implementation of a standard that would result in a fair presentation of the company’s financial condition and earnings. When the financial vice president determines that early implementation of the standard will adversely affect the reported net income for the year, he discourages Hoger from implementing the standard until it is required. Required: a) What, if any, is the ethical issue involved in this case? b) Is the financial vice president acting improperly or immorally?: c) What does Hoger have to gain by advocacy of early implementation and who might be affected by the decision against early implementation?arrow_forwardBecause of the ongoing community quarantine brought about by COVID-19, there was a drastic reduction in the revenue from vegetable sales. The management decided to wait until the pandemic is over and present financial statements for the waiting period rather than prepare now the traditional twelve-month financial statements. Which of the following statements is true? * This is a violation of the periodicity assumption. This supports the going concern assumption. This is a violation of the monetary unit assumption. This supports the accrual basis of accounting.arrow_forward
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