lawn mowers, has a projected income for the coming year as follows: Sales $ 37,000,000 Operating expenses: Variable expenses $ 22,200,000 Fixed expenses 7,400,000 Total expenses 29,600,000 Operating profit $ 7,400,000
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.
awn Master Company, a manufacturer of riding lawn mowers, has a projected income for the coming year as follows:
| Sales | $ | 37,000,000 | |||||
| Operating expenses: | |||||||
| Variable expenses | $ | 22,200,000 | |||||
| Fixed expenses | 7,400,000 | ||||||
| Total expenses | 29,600,000 | ||||||
| Operating profit | $ | 7,400,000 | |||||
Required:
1. Determine the breakeven point in sales dollars.
2. Determine the required sales in dollars to earn a before-tax profit of $8,500,000. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)
3. What is the breakeven point in sales dollars if the variable expenses increases by 8%? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar amount.)
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