8th Edition

ISBN: 9781259917066

Author: BREWER, Peter C., Garrison, Ray H., Noreen, Eric W.

Publisher: Mcgraw-hill Education,

Concept explainers

Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost st…

Marginal Costing

Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs r…

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Textbook Question

Chapter 6, Problem 3Q

In all respects, Company A and Company B are identical except that Company A’s cost are mostly variable, whereas Company B’s cost are mostly fixed. When sales increase, which company will tend to realize the greatest increase in profits? Explain.

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Chapter 6, Problem 2Q

Chapter 6, Problem 4Q

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Let’s say that two firms, A and B have positive profit margins. B’s fixes costs as a percentage of total costs exceeds A’s percentage. Assume both firms experience an equal percentage increase in revenue. Which firm will enjoy a greater percentage increase in profit as a result? A) A B) B C) they will be equal

The figure below shows each break-even point of Company A and Company B. Which of the following is an appropriate description concerning the benefit-risk analysis of the two companies? a.) Both companies have the same break-even point and fixed cost, so the profit and loss is also equal as long as the sales are equal. b.) The break-even points of both companies are equal, so the sales necessary for making equal profits are also equal for both companies. c.) The variable cost ratio of Company A is lower than Company B, and therefore, when the sales above the break-even point are equal, the profit of Company A is higher than Company B. d.) When the sales of both companies above the break-even point are equal, Company B that has a lower fixed cost makes a higher profit than Company A.

What analysis ensures that the income for the firm will cover its variable costs? a. ratio analysis b. financial analysis c. cost volume profit analysis d. sales analysis

Chapter 6 Solutions

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In all respects, Company A and Company B are identical except that Company A’s cost are mostly variable, whereas Company B’s cost are mostly fixed. When sales increase, which company will tend to realize the greatest increase in profits? Explain.

Solution Summary: The author explains that Company A and Company B are identical except that company A's cost is variable, while company B’s costs are fixed. The difference between the sales revenue and variable expenses is contribution margin.

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Chapter 6 Solutions