Projected financial results for the university's cafeteria for next year are shown. Answer each of the following independent questions. Sales $944,000 Fixed Cost $597,000 Total Variable Cost $235, 470 Total Cost $832, 470 Net Income $111,530 (a) How much is the contribution margin and the contribution rate? (b) How much does the business need to sell to break even? (c) If the business was to spend $24,000 to upgrade their processes, how much does the business need to sell to break even? (d) If 9% more meals were sold, what would be the resulting net income?
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.
Projected financial results for the university's cafeteria for next year are shown. Answer each of the following independent questions.
Sales $944,000
Fixed Cost $597,000
Total Variable Cost $235, 470
Total Cost $832, 470
Net Income $111,530
(a) How much is the contribution margin and the contribution rate?
(b) How much does the business need to sell to break even?
(c) If the business was to spend $24,000 to upgrade their processes, how much does the business need to sell to break even?
(d) If 9% more meals were sold, what would be the resulting net income?
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