Cost, Volume, and Profit Formulas

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Cost, Volume, and Profit Formulas ACC/220-Survey of Accounting: The Maze of Numbers January 08, 2012 Sonya Ellis Cost-volume profit (CVP) analysis consist of five components which are volume or level of activity, unit selling prices, variable cost per unit, total fixed costs and, sales mix. They each play an important row in analyzing the effects of changes in costs and volume on a company’s profits. These components are used to determine both a company’s operating income and net income. The volume or level of activity tells the company how many units were sold or produced. The unit selling prices shows the selling price per unit that the product should be sold for. Variable cost per unit is the cost per unit sold that could change depending on the activity level. Fixed costs are the cost that never changes unlike variable cost. Sales mix are when more than one produce is sold. When unit selling prices increase the contribution margin per unit increases the net income. I have prepared two tables below illustrating how unit selling prices for Mia’s Custom Car Doors might affect contribution margin. Example A: Mia’s Custom Car Doors CVP Income Statement Month Ending December 31, 2011 Total Per Unit Sales (100 Doors) $50,000 $500 Variable Cost $35,000 $350 Contribution Margin $27,000 $270 Fixed Cost $27,000 Net Income $ -0- Example B: Mia’s Custom Car Doors CVP Income Statement Month Ending December 31, 2011 Total Per Unit Sales (100 Doors) $65,000 $650 Variable Cost $35,000 $350 Contribution Margin $30,000 $300 Fixed Cost $27,000 Net Income $3,000 As you can see the difference in the two examples is that when the selling price increased the contribution margin also increased which left the company with a $3,000 profit. Example C: Mia’s Custom Car Doors

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