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
Margin of Safety:
Margin of safety is sales over and above the breakeven level. Margin of safety can be calculated as dollar amount and in units as follows:
To calculate:
The Margin of Safety and Margin of Safety as % of sales
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- Orman Company produces neon-colored covers for tablets (e.g., iPads). For last year, Orman reported the following: Last year, Orman produced 89,000 units and sold 90,500 units at 10.50 per unit. Required: 1. Prepare a statement of cost of goods manufactured. 2. Prepare an absorption-costing income statement.arrow_forwardTotal cost method of product pricing Based on the data presented in Exercise 17, assume that Smart Stream Inc. uses the total cost method of applying the cost-plus approach to product pricing. A. Determine the total costs and the total cost amount per unit for the production and sale of 10,000 cellular phones. B. Determine the total cost markup percentage (rounded to two decimal places) for cellular phones. C. Determine the selling price of cellular phones. (Round markup to the nearest dollar.)arrow_forwardWest Island distributes a single product. The companys sales and expenses for the month of June are shown. Using the information presented, answer these questions: A. What is the break-even point in units sold and dollar sales? B. What is the total contribution margin at the break-even point? C. If West Island wants to earn a profit of $21,000, how many units would they have to sell? D. Prepare a contribution margin income statement that reflects sales necessary to achieve the target profit.arrow_forward
- Pietro expects to produce 50,000 units and sell 49,300 units. Beginning inventory of finished goods is 42,500, and ending inventory of finished goods is expected to be 34,000. Required: 1. Prepare a statement of cost of goods sold in good form. 2. What if the beginning inventory of finished goods decreased by 5,000? What would be the effect on the cost of goods sold?arrow_forwardLegrand Company produces hand cream. In 2018, their financial information is as follows:Each jar sells for: $3.40Total variable cost (materials, labor, and overhead) per jar: $2.55Total fixed cost: $58,140Total jars sold in 2018: 81,6001. Calculate the margin of safety in units?arrow_forwardComputing margin of safety Robbie’s Repair Shop has a monthly target profit of $31,000. Variable costs are 20% of Sales, and monthly fixed costs are $19,000. Requirements Compute the monthly margin of Safety in dollars if the shop achieves its income goal. Express Robbie’s margin of safety, as a percentage of margin Sales. Why would Robbie’s management want to know the shop’s margin of safety?arrow_forward
- MURDER TO GO! writes and manufactures murder mystery parlor games that it sells to retail stores. The following is per-unit information relating to the manufacture and sale of this product. Unit sales price $ 30 Variable cost per unit 6 Fixed costs per year 360,000 a. Determine the margin of safety (in dollars) if annual sales total 60,000 units. b. Determine the operating income if annual sales total 60,000 units.arrow_forwardELLA T., Inc. has annual sales of 5,400 units; management decides to establish the EOQ model. The firm has two possible suppliers: Supplier A Shipping costs $1,000 Per-unit carrying costs $70 Supplier B Shipping costs $900 Per-unit carrying costs $81 What is the EOQ for each supplier? Round your answers to the nearest whole number. Supplier A: units Supplier B: units If the firm establishes a safety stock of 108 units, what is the firm's average inventory for both suppliers? Use the rounded value from the previous question. Round your answers to the nearest whole number. Supplier A: units Supplier B: units What will be the firm's expected maximum and minimum inventory with each supplier? Use the rounded value from the previous questions. Round your answers to the nearest whole number. Units Minimum Maximum Supplier A: Supplier B: If delivery takes nine days, what should be the firm's level of inventory when it places an…arrow_forwardHeather Hudson makes stuffed teddy bears. Recent information for her business follows: Selling price per bear $ 26.00 Total fixed costs per month 1,430.00 Variable cost per bear 10.00 She sells 390 bears this month. Required: Suppose sales increase by 20 percent next month. Calculate the effect that increase will have on her profit.arrow_forward
- Required information [The following information applies to the questions displayed below.]Iguana, Inc., manufactures bamboo picture frames that sell for $30 each. Each frame requires 4 linear feet of bamboo, which costs $2.50 per foot. Each frame takes approximately 30 minutes to build, and the labor rate averages $14 per hour. Iguana has the following inventory policies: Ending finished goods inventory should be 40 percent of next month’s sales. Ending direct materials inventory should be 30 percent of next month’s production. Expected unit sales (frames) for the upcoming months follow: March 295 April 290 May 340 June 440 July 415 August 465 Variable manufacturing overhead is incurred at a rate of $0.20 per unit produced. Annual fixed manufacturing overhead is estimated to be $9,000 ($750 per month) for expected production of 5,000 units for the year. Selling and administrative expenses are estimated at $800 per month plus $0.50 per unit sold. Iguana,…arrow_forwardCompute (a) the margin of safety in dollars and (b) the margin of safety ratio with the given details below: Aactual sales for the product= 1,000,000 Break-even sales = 840,000.arrow_forwardRobert's Repair Shop has a monthly target profit of $21,000. Variable costs are 40% of sales, and monthly fixed costs are $27,000. Requirements 1. Compute the monthly margin of safety in dollars if the shop achieves its income goal. 2. Express Robert's margin of safety as a percentage of target sales. 3. Why would Robert's management want to know the shop's margin of safety? Requirement 1. Compute the monthly margin of safety in dollars if the shop achieves its income goal. Select the labels and enter the amounts to compute Robert's Repair Shop's monthly margin of safety in dollars. (1) - (2) = Margin of safety in dollars - = Requirement 2. Express Robert's margin of safety as a percentage of target sales. (Enter your answer as a whole percent.) The margin of safety as a percentage of target sales is: %. Requirement 3. Why would Robert's management want to know the shop's margin of safety?…arrow_forward
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