Paper Topic:
Title: Cost, Volume, and Profit Formulas
Running Head : COST , VOLUME , AND PROFIT FORMULAS Cost , Volume , and Profit Formulas In APA Style By Student 's Name Course Name University 1 2 . Explain the components of cost-volume-profit analysis . What does each of the components mean The cost-volume-profit analysis is a business tool which companies utilize in to analyze the effects of changes on costs and volume in its profits . It has five major components namely , volume or level of activity , unit selling prices , variable cost per unit , and sales mix . The volume of level of activity refers
to the quantity of the product which is sold . Unit selling prices is the amount that the company sells one unit of its product to the customers . In CVP analysis costs are classified as a either variable or fixed . Variable cost per unit refers to the costs which can be directly attributed to the production of the product like direct labor and materials . Fixed costs on the other hand , are costs which are incurred even if the company increase or lessen its level of activity . Sales mix is applicable to business organizations which has two or more products . It refers to the breakdown of sales according to product types
3 4 . Based on the formulas you have reviewed , what happens to contribution margin per unit when unit selling prices increase Illustrate your explanation with an example from a fictitious company of how an increase in unit selling prices might affect contribution margin
Holding everything constant , an increase in the unit prices will directly increase the contribution margin per unit by the amount of price increase . For example , company A sells a burger for 2 .00 incurring 1 .50 for the production . Contribution margin is then 0 .50 2 .00- 1 .50 . If unit price is raised from 2 .00 to 2 .50 , the company 's contribution margin per unit will increase by 0 .50 which is equal to the amount of price increase 2 .50- 1 .50 . The contribution margin due to this price increase will be equal to 1 .00
5 . When fixed costs decrease , what does this do for sales ? Illustrate your explanation with an example from a fictitious company
A decrease in fixed cost will have a direct impact in the required sales of the company in to reach break-even or generate a target profit In general , a decrease in fixed cost lowers the required sales as part of the previous fixed cost will now be counted as profit . Take for example , Starjuice which sells orange juice for 1 .00 per bottle /unit has variable cost of 0 .70 per unit , and fixed expenses of 10 ,000 Starjuice wants to generate a profit of 5 ,000 . Thus , it needs to sell 10 ,000 5 ,000 1 .00- 0 .70 , 50 ,000 bottles of orange juice or 50 ,000 in has decreased to 4 ,000 , then the company only needs to sell 4 ,000 5 ,000 1 .00- 0 .70 , 30 ,000 bottles or 30 ,000 in...
Not the Essay You're looking for? Get a custom essay (only for $12.99)
