Cost, volume, and profit formulas Essay

The represent- tawdriness-profit analysis is a business tool which companies utilize in order 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 of measurement change monetary values, varying cost per unit, total meliorate cost, and sales mix. The volume of level of activity refers to the quantity of the make up which is sold. Unit interchange expenses is the amount that the company sells one unit of its product to the customers. In CVP analysis, costs atomic number 18 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 profit or lessen its level of activity. gross revenue mix is applicable to business organizations which has two or more products. It refers to the breakdown o f sales according to product types. 3&4. Based on the formulas you have reviewed, what happens to persona 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 component margin. Holding everything constant, an increase in the unit prices will directly increase the portion margin per unit by the amount of price increase. For example, company A sells a burger for $2. 00 incur $1. 50 for the production. Contribution margin is hence $0. 50 ($2. 00-$1. 50). If unit price is raised from $2. 00 to $2. 50, the companys 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 shine, 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 requisite sales of the company in order to reach break-even or generate a target profit. In general, a decrease in fixed cost lowers the required sales as part of the anterior fixed cost will now be counted as profit.Take for example, Starjuice which sells orangeness juice for $1. 00 per store/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 total sales to reach this target. However, when fixed cost 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 total sales.6&7. Define contribution ratios. What happens to contribution ratios as one of the components changes? The contribution margin ratio refers to the ratio of the contribution margin to the unit selling price. For the Starjuice example above, the contribution margin ratio is 0. 30 or 30% as the contribution margin of $0. 30 is 30% of the total selling price of $1. 00. The changes in the contribution margin are often facilitated by the changes in unit selling price and variable costs.An increase in the unit selling price which is discussed above to enhance contribution margin will subsequently bring a rise in contribution ratio. On the other hand, a decrease in selling price will also bring a decline in contribution ratio. Increase in variable cost will directly lessen contribution margin thereby lowering contribution ratio. However, a decrease in variable cost will increase contribution margin and increasing contribution ratio.