Throughout the chapter we have relied on certain assumptions that have simplified the application of cost-volume-profit analysis, In practice, however. some of these assumptions may not always hold true. These assumptions include I. Sales price per unit is assumed to remain constant. 2. If more than one product is sold. the prr-portion of the various products sold…
To find the dollar sales volume a company must generate for a given target of operating income, we could first compute the required sales volume in units and then multiply our answer by the average selling price per unit. Thus ProGlide would have to generate approximately $72,000 in revenue (800 pairs of skates x $90) to earn…
Having gained an understanding of various cost behaviors, we can now expand our discussion to include the relationships among costs (both manufacturing costs and operating expenses), revenue, and operating income as follows: Revenue – Variable Costs – Fixed Costs = Operating Income This basic relationship set s the stage for introducing cost-volume-profit analysis. a widely used management planning…
1. Explain how fixed, variable, and semivariable costs respond. to changes in the volume of business activity. 2. Explain how economies of scale can reduce unit costs. 3. Prepare a cost-volume profit graph . 4. Compute contribution margin and explain its usefulness. 5. Determine the sales volume required to earn a desired level of operating income. INTEL It wasn’t too long ago that…
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