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
Degree of operating leverage:
The Degree of operating leverage shows the relation between change in net operating income and change in sales. The formulas for degree of operating leverage are as follows:
To calculate:
The Degree of operating leverage
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Managerial Accounting
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- Abilene Industries manufactures and sells three products (XX, W, and ZZ). The sales price and unit variable cost for the three products are as follows: Their sales mix is reflected as a ratio of 4:2:1. Annual fixed costs shared by the three products are $345.000 per year. What are total variable costs for Abilene with their current product mix? Calculate the number of units of each product that will need to be sold in order for Abilene to break even. What is their break-even point in sales dollars? Using an income statement format, prove that this is the break-even point.arrow_forwardMultiproductGreen Rider makes three types of electric scooters. The company’s total fixed cost is $1,080,000,000. Selling prices, variable cost, and sales percentages for each type of scooter follow: Selling Price Variable Cost Percent of Total Unit Sales Mod $2,200 $1,900 30 Rad 3,700 3,000 50 X-treme 6,000 5,000 20 a. What is Green Rider’s break-even point in units and sales dollars? Units Dollars Mod Rad X-treme Total b. If the company has an after-tax income goal of $1 billion and the tax rate is 50 percent, how many units of each type of scooter must be sold for the goal to be reached at the current sales mix? Units Dollars Mod Rad X-treme Total c. Assume the sales mix shifts to 50 percent Mod, 40 percent Rad, and 10 percent X-treme. How does this change affect your answer to (a)?Note: Do not round until you determine the number of units of each product; round…arrow_forwardBreak-Even Units, Contribution Margin Ratio, Multiple-Product Breakeven, Margin of Safety, Degree of Operating Leverage Jellico Inc.'s projected operating income (based on sales of 450,000 units) for the coming year is as follows: Line Item Description Total Sales $ 13,050,000 Total variable cost 8,482,500 Contribution margin $ 4,567,500 Total fixed cost 2,664,375 Operating income $ 1,903,125 Required: 1(a). Compute variable cost per unit. Enter your answer to the nearest cent. fill in the blank 1 of 1$ 18.85 per unit 1(b). Compute contribution margin per unit. Enter your answer to the nearest cent. fill in the blank 1 of 1$ 10.15 per unit 1(c). Compute contribution margin ratio. Enter to one decimal point. fill in the blank 1 of 1 35 % 1(d). Compute break-even point in units. Reminder: round-up to ensure partial units are completed. fill in the blank 1 of 1 262,500 units 1(e). Compute break-even point in sales dollars. fill in the blank 1 of 1$ 7,612,500 2. How…arrow_forward
- JJ Manufacturing builds and sells switch harnesses for glove boxes. The sales price and variable cost for each follows: Their sales mix is reflected in the ratio 4:4:1. A. What is the overall Composite Unit Contribution Margin for JJ Manufacturing with their current product mix? B. If annual fixed costs shared by the three products are $18,840, how many units of each product are to be sold in order for JJ Manufacturing to break even? Trunk Switch Gas Door Switch Glove Box Light C. Determine their break-even point in sales dollars. Trunk Switch Gas Door Switch Glove Box Lightarrow_forwardSales Mix and Break-Even Sales Dragon Sports Inc. manufactures and sells two products, baseball bats and baseball gloves. The fixed costs are $197,600, and the sales mix is 70% bats and 30% gloves. The unit selling price and the unit variable cost for each product are as follows: Products Unit Selling Price Unit Variable Cost Bats $40 $30 Gloves 100 60 a. Compute the break-even sales (units) for the overall enterprise product, E. units b. How many units of each product, baseball bats and baseball gloves, would be sold at the break-even point? Baseball bats units Baseball gloves unitsarrow_forwardVariable Cost Concept of Product Pricing Smart Stream Inc. uses the variable cost concept of applying the cost-plus approach to product pricing. The costs of producing and selling 5,000 units of cellular phones are as follows: Variable costs: Fixed costs: Direct materials $ 60 per unit Factory overhead $144,300 Direct labor 28 Selling and admin. exp. 50,700 Factory overhead 18 Selling and admin. exp. 14 Total $120 per unit Smart Stream wants a profit equal to a 15% rate of return on invested assets of $420,000. a. Determine the variable costs and the variable cost amount per unit for the production and sale of 5,000 units of cellular phones. Round to two decimal places. Total variable costs $fill in the blank 1 Variable cost amount per unit $fill in the blank 2 b. Determine the variable cost markup percentage for cellular phones.fill in the blank 3 % c. Determine the selling price of cellular phones. Round to…arrow_forward
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