Cost-Volume-Profit, Margin of Safety Abraham Company had revenues of $830,000 last year with total variable costs of $647,400 and fixed costs of $110,000. Required: 1. What is the variable cost ratio for Abraham? What is the contribution margin ratio? 2. What is the break-even point in sales revenue? 3. What was the margin of safety for Abraham last year? 4. Conceptual Connection: Abraham is considering starting a multimedia advertising campaign that is supposed to increase sales by $12,000 per year. The campaign will cost $4,500. Is the advertising campaign a good idea? Explain.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Cost-Volume-Profit, Margin of Safety Abraham Company had revenues of $830,000 last year with total variable costs of $647,400 and fixed costs of $110,000.
Required:
1. What is the variable cost ratio for Abraham? What is the contribution margin ratio?
2. What is the break-even point in sales revenue? 3. What was the margin of safety for Abraham last year?
4. Conceptual Connection: Abraham is considering starting a multimedia advertising campaign that is supposed to increase sales by $12,000 per year. The campaign will cost $4,500. Is the advertising campaign a good idea? Explain.
Step by step
Solved in 3 steps
