Concept explainers
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
To Indicate:
The effect of decrease in direct material cost per unit on the breakeven point
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Survey of Accounting (Accounting I)
- What would be the effect on the unit cost of finished goods if an estimate of the stage of completion of work in process was: too high? too low?arrow_forwardExplain how for is possible for costs to change without changing the break-even point.arrow_forwardHow can there be a different number of equivalent units for materials as compared to conversion costs?arrow_forward
- Why is absorption costing the method allowable for GAAP?arrow_forwardIf the total materials variance for a given operation is favorable, why must this variance be further evaluated as to price and usage?arrow_forwardThe direct costs of materials that change with the number of units produced is an example of a fixed production cost. True or falsearrow_forward
- What is the reduction in variable manufacturing cost for alternative a and barrow_forwardWhich of the following is the difference between the actual cost of materials and thematerials cost allowed for the actual level of activity? a. Total materials variance b. Total materials regression c. Total materials cost d. Total materials margin e. None of thesearrow_forwardThe materials price variance can be computed at what two different points in time? Which point is better? Why?arrow_forward
- what are the possible causes of favourable Material usage variancearrow_forwardWithout resorting to computations, what is the total contribution margin at the break-even point?arrow_forwardIf the materials price variance is favorable but the materials quantity variance is unfavorable, what might this indicate?arrow_forward
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