Waterways has a sales mix of sprinklers, valves, and controllers as follows. Annual expected sales: Sale of sprinklers 485,415 units at $26.00 Sale of valves 1,561,770 units at $11.00 Sale of controllers 63,315 units at $42.00 Variable manufacturing cost per unit: Sprinklers $14.00 Valves $8.00 Controllers $30.00 Fixed manufacturing overhead cost (total) $746,000 Variable selling and administrative expenses per unit: Sprinklers $1.00 Valves $1.00 Controllers $3.00 Fixed selling and administrative expenses (total) $1,663,212 Determine the sales mix based on unit sales for each product. Sprinklers Valves Controllers Sales mix % % % Using the annual expected sales for these products, determine the weighted-average unit contribution margin for these three products. (Round answer to two decimal places, e.g. 5.25.) Weighted-Average Unit Contribution Margin $ Assuming the sales mix remains the same, what is the break-even point in units for these products? (Round answer to 0 decimal places, e.g. 2,520.) Break-even Point in Units units
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.
Waterways has a sales mix of sprinklers, valves, and controllers as follows.
| Annual expected sales: | ||
| Sale of sprinklers | 485,415 units at $26.00 | |
| Sale of valves | 1,561,770 units at $11.00 | |
| Sale of controllers | 63,315 units at $42.00 |
| Variable |
||||
| Sprinklers | $14.00 | |||
| Valves | $8.00 | |||
| Controllers | $30.00 | |||
| Fixed manufacturing |
$746,000 |
| Variable selling and administrative expenses per unit: | ||||
| Sprinklers | $1.00 | |||
| Valves | $1.00 | |||
| Controllers | $3.00 | |||
| Fixed selling and administrative expenses (total) | $1,663,212 |
Determine the sales mix based on unit sales for each product.
| Sprinklers | Valves | Controllers | ||||
| Sales mix |
% |
% |
% |
Using the annual expected sales for these products, determine the weighted-average unit contribution margin for these three products. (Round answer to two decimal places, e.g. 5.25.)
| Weighted-Average Unit Contribution Margin |
$ |
Assuming the sales mix remains the same, what is the break-even point in units for these products? (Round answer to 0 decimal places, e.g. 2,520.)
| Break-even Point in Units |
|
units |
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