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Chapter 20: Q20-12RQ (page 1119)

What is cost-volume-profit analysis?

Short Answer

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Answer

A tool that explains the relationship between cost, volume and prices are known as cost-volume-profit analysis.

Step by step solution

01

Meaning of cost-volume-profit analysis

A tool that explains the relationship between cost, volume, and prices is known as cost-volume-profit analysis. Also, it expresses their effects on profit and losses.

02

Breakeven point of CVP analysis

Break-even point refers to the point where business entity is neither at loss or nor at profit. At this point total cost equal to total turnover.

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Most popular questions from this chapter

What is a variable cost? Give an example.

Calculating contribution margin

Glenn Company sells a product for \(80 per unit. Variable costs are \)60 per unit, and fixed costs are $800 per month. The company expects to sell 560 units in September. Calculate the contribution margin per unit, in total, and as a ratio.

On the CVP graph, where is the breakeven point shown? Why?

What effect does an increase in sales price have on contribution margin? An increase in fixed costs? An increase in variable costs?

The budgets of four companies yield the following information:

Company

Beach Lake Mountain Valley

Net Sales Revenue \( 1,615,000 \)(d) \( 1,050,000 \)(j)

Variable Costs (a) 60,000 525,000 100,800

Fixed Costs (b) 232,000 260,000 (k)

Operating Income (Loss) 285,600 (e) (g) 31,500

Units Sold 170,000 10,000 (h) (l)

Contribution Margin per Unit \( 3.80 \) (f) \( 75.00 \) 9.00

Contribution Margin Ratio (c) 80% (i) 30%

Requirements

1. Fill in the blanks for each missing value. (Round the contribution margin per unit to the nearest cent.)

2. Which company has the lowest breakeven point in sales dollars?

3. What causes the low breakeven point?

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