Managerial Accounting CVP Analysis Cost-Volume-Profit Essay

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Also, these costs are not directly attributable to production and this makes it vital that the company keeps these expenses under constant control.

Calculations

Break-even point

Break-even point = Fixed costs / (Unit Selling Price -- Unit Variable Cost)

Break-even point for the given data = 500,000 / (20-10) = 50,000

So, the firm has to sell 50,000 units at the current price levels to break-even. The break-even point in terms of dollars is 50,000 * $20 = $1,000,000

Increased Sale Price

When the sale price is increased to $25, the revenue required to break even is $1,250,000.

The firm is estimated to lose 10% of sales, so the units sold will be 45,000.

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This will bring the revenue to $1,125,000. So the expected profitability will be $125,000.

It is not a good idea not to increase the price because the company should look at expanding the reach of its products, which is to increase the sales. This can bring profitability for the company in the long-run.

Additional fixed cost

When another $80,000 is added to the fixed cost, the new break-even point is

$580,000/10 = 58,000. The company has to sell an additional 8000 units to break-even.

Finally, the firm has to sell the following units to get a profit of $250,000.

The break-even.....

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