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
Weighted Average Contribution Margin:
Weighted Average Contribution Margin is calculated for two products with the help of following formula:
To calculate:
The weighted Average contribution margin Ratio
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Managerial Accounting - With Access
- What is meant by a products contribution margin ratio and how is this ratio useful in planning business operations?arrow_forwardTo calculate the sales dollars necessary to achieved a desired profit level, the sum of fixed costs plus desired prof it is divided by contribution margin weighted average unit contribution margin contribution margin ratio unit sales price minus unit contribution marginarrow_forwardMatching Following are a number of key terms and concepts introduced in thechapter, along with a list of corresponding definitions. Match the appropriate letter for the key term or concept to each definition provided (items 1–12). Note thatnot all key terms and concepts will be used. Answers are provided at the end of thischapter.a. Cost–volume–profit analysisb. Cost formulac. Contribution margind. Contribution margin formatincome statemente. Linearity assumptionf. Contribution margin ratiog. Operating leverageh. Sales mixi. Break-even pointj. High–low techniquek. Managerial accountingl. Management processm. Variable costn. Fixed costo. Relevant rangep. Mixed (semivariable) costq. Cost behavior pattern____ 1. The proportion of total sales represented by various products or categoriesof products.____ 2. The difference between revenues and variable costs.____ 3. The concept that operating income changes proportionately more than revenues for any given change in revenues.____ 4. The…arrow_forward
- What is the company’s contribution margin (CM) ratio?arrow_forwardBased on the image below for a manufacturing company, the correct statement is A. line b graphs total fixed costs B. point c represents the point at which the marginal contribution per unit increases C. line d graphs total costs D. area e (between lines b and d) represents the contribution marginarrow_forwardThe number of units produced, or the number of units sold describes: a. Cost behavior b. Activity level c. Sales mix d. Contribution marginarrow_forward
- On an income statement prepared using variable costing, to calculate contribution margin, a company will subtract what from sales? Question options: a) variable manufacturing costs. b) variable manufacturing and operating costs. c) variable cost of goods sold. d) cost of goods sold.arrow_forwardDescribe how total variable costs and unit variable costs behave with changes in the level of activity. Describe the behavior of (a) total fixed costs and (b) unit fixed costs as the level of activity increases. In applying the high-low method of cost estimation, how is the total fixed cost estimated? An examination of the accounting records of Larredo Company disclosed a high contribution margin ratio and production at a level below maximum capacity. Based on this information, suggest a likely means of improving operating income. If the unit cost of direct materials is decreased, what effect will this change have on the break-even point? What does operating leverage measure, and how is it computed?arrow_forwardKSAs: Understand processes and concepts of cost-volume-profit. How to Calculate unit contribution margin, contribution margin, contribution margin ratio, and operating income?arrow_forward
- In deciding which product lines to emphasize when a production constraint exists, the company should focus on the product line that has the highest a. contribution margin per unit of product. b. contribution margin per unit of the constraint. c. profit per unit of product. d. contribution margin ratio.arrow_forwarda. Prepare a contribution margin by product report. Calculate the contribution margin ratio for each. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.arrow_forwardThe dollar amount of sales needed to achieve a target operating income is computed by dividingbtarget operating income by the contribution margin ratio True Falsearrow_forward
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