uestion: Total Per Unit Revenue $ 480,000 $ 30.00 Variable expenses 208,000 13.00 Contribution margin 272,000 $ 17.00 Fixed expenses 216,000 Operating income $ 56,000 1. now assume a tax rate of 30%. How many units need to be sold each month to achieve an after-tax profit of $95,000? 2. Based on the original data supplied above, what is CVC's current margin of safety in both dollar and percentage terms? 3.If CVC increased sales by $50,000 per month and there is no change in total fixed expenses and variable expenses per unit, what should operate income increase by? 4.If sales were to increase by 15% what should operating income increase by (again no change in total fixed expenses and variable costs per unit)? Use operating leverage to answer this question.
Cost-Volume-Profit Analysis
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 structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
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 remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Total | Per Unit | |
Revenue | $ 480,000 | $ 30.00 |
Variable expenses | 208,000 | 13.00 |
Contribution margin | 272,000 | $ 17.00 |
Fixed expenses | 216,000 | |
Operating income | $ 56,000 |
1. now assume a tax rate of 30%. How many units need to be sold each month to achieve an after-tax profit of $95,000?
2. Based on the original data supplied above, what is CVC's current margin of safety in both dollar and percentage terms?
3.If CVC increased sales by $50,000 per month and there is no change in total fixed expenses and variable expenses per unit, what should operate income increase by?
4.If sales were to increase by 15% what should operating income increase by (again no change in total fixed expenses and variable costs per unit)? Use operating leverage to answer this question.
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