1.
Cost-Volume-Profit Analysis (CVP Analysis):
CVP Analysis is a tool of cost accounting that measures the effect of variation on operating profit and net income due to the variation in proportion of sales and product costs.
Break-Even Point:
Break-even point is a point of sales where company can cover all its variable and fixed costs. It is a point of sales where revenue generated is equal to the total costs. Thus, profit is zero at this level of sales.
Operating Income:
Operating income is the revenue generated from the routine course of business operations. Alternatively operating income can also be referred as the earnings before interest and taxes (EBIT) which is the sum total of income after deduction of operational expenses.
To compute: Break-even points for product A, B and C.
2.
To compute: Operating income.
3.
To compute: New operating income.
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EBK HORNGREN'S COST ACCOUNTING
- The Matrix Company has three product lines of belts—A, B, and C—with contribution margins of $7, $5, and $4, respectively. The president foresees sales of 400,000 units in the coming period, consisting of 40,000 units of A, 200,000 units of B, and 160,000 units of C. The company’s fixed costs for the period are $1,020,000. Assuming that the product mix is unchanged, how many units of Product A will be sold to breakeven?arrow_forwardThe J&J Company has three product lines ofbelts—A, B, and C—having contribution margins of$3, $2, and $1, respectively. The president foreseessales up to 200,000 units in the coming period, consisting of 20,000 units of A, 100,000 units of B, and80,000 units of C. The company’s fixed costs for theperiod are $255,000.(a) What is the company’s break-even point inunits, assuming that the given sales mix ismaintained?(b) If the mix is maintained, what is the total contribution margin when 200,000 units are sold?What is the operating income?(c) What would the operating income become if20,000 units of A, 80,000 units of B, and 100,000units of C were sold? What is the new break-evenpoint in units if these relationships persist in thenext period?arrow_forward4. The Janowski Company has three product lines of mugs-A, B, and C with contribution margins of $5, S4, and $3, respectively. The president foresees sales of 168,000 units in the coming period, consisting of 24,000 units of A, 96,000 units of B, and 48,000 units of C. The company's fixed costs for the period are $405,000. a. What is the company's breakeven point in units, assuming that the given sales mix is maintained? b. If the sales mix is maintained, what is the total contribution margin when 168,000 units are sold? What is the operating income? c. What would operating income be if the company sold 24,000 units of A, 48,000 units of B, and 96,000 units of C? What is the new breakeven point in units if these relationships persist in the next period?arrow_forward
- The Ronowski Company has three product lines of belts—A, B, and C— with contribution margins of $3, $2, and $1, respectively. The president foresees sales of 200,000 units in the coming period, consisting of 20,000 units of A, 100,000 units of B, and 80,000 units of C. The company’s fixed costs for the period are $255,000. Q.If the sales mix is maintained, what is the total contribution margin when 200,000 units are sold? What is the operating income?arrow_forwardBBB Company has capacity to produce 150,000 units a year and sell it for $96 each. The costs of producing and selling 150,000 units are as follows (attached) Required 1. Suppose BBB is currently producing and selling 120,000 units. At this level of production and sales, its fixed costs are the same as given in the preceding table. WWW Company wants to place a onetime special order for 30,000 units at $75 each. Should BBB accept this one-time special order? Show your calculations. 2. Suppose BBB is currently producing and selling 150,000 units. (a) should BBB accept WWW offer one-time special order? Show your calculations. (b) at what price would BBB be indifferent between accepting the special order and continuing to sell to its regular customers at $96 per unit.arrow_forwardAn organization makes and sells three products, F, G, and H. The products are sold in the proportions F: G:H= 2:1:3. The organization’s fixed costs are $80000 per month and details of the products are as follows.Product Selling price $ per unit Variable cost $ per unitF 22 16G 15 12H 19 13The organization wishes to earn a profit of $52000 next month.Required:Calculate the required sales value of each product in order to achieve this target profit.arrow_forward
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- Fantastic Company has capacity for the production and sales of 30,000 units. Current production is 10,000 units and fixed costs are $13 per unit. If production is increased to 20,000 units, fixed costs will:arrow_forwardAgta Enterprises manufactures a product that sells for R180 each. The company presently produces and sells 50 000 units per year. Unit variable manufacturing and selling expenses are R90 and R18 respectively. Annual fixed costs are R2 200 000 for manufacturing overheads and R1 040 000 for selling and administrative activities Suppose the marketing manager proposes that the selling price be increased to R198 per unit. Calculate the amount by which fixed costs must decrease in order to achieve the company’s profit objective of R1 800 000, if 50 000 units are sold.arrow_forwardABC Company manufactures the product XE-17. The product is sold at a unit price of $70.Variable expenses are $13.50 per unit and fixed expenses are $220,000 per year.Required :a. What should be the product’s CM ratio? b. Calculate the BEP is sales dollars and in units for ABC Company. c. The manager of ABC company estimates that in the coming year, the company’s sales willincrease by $80,000 (from the current sales). How much should the net profit / loss increase/decrease if the fixed costs remain constant? d. The manager of ABC company predicts that by spending an additional $80,000 per year onadvertising and using higher quality raw material (which will in turn increase the raw materialcost per unit by $3), and increasing selling price per unit by 2% (to compensate for theincreased costs), unit sales will increase by two- thirds of the current sales units. Should thecompany go with the manager’s proposed plan? Explain your answer. (Assume that in thecurrent year, the company sold…arrow_forward
- Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning