come at a cost, however, and sales must increase considerably just to break even or make the price cuts profitable 1-P&G’s average contribution margin before the price cuts was 20 percent. Refer to Appendix 2 and calculate the new contribution margin if prices are reduced 10 percent. Average contribution margin before the price cuts = 20% Contribution Margin = price – variable cost / price Assume price is 100 0.2 = 100 – x/100 20 = 100 –x 20 + x = 100 X = 100 – 20 X = 80 (variable
Words: 255 - Pages: 2
borrowing from family and from the bank. * Their initial funding has quickly depleted, therefore securing funding is an immediate priority. Slide 3. * The formula for contribution margin is the selling price of a product less its associated variable cost. * In other words, calculating the contribution margin determines the sales amount left over after adjusting for the variable costs of selling additional products. * Examples of variable costs are direct labour and direct materials
Words: 767 - Pages: 4
the decline in the company profits and actual gross margin to less than 20%, compared to 35% planned gross margin. Consequently, the Wilkerson company needs to reduce the price every month to maintain the market leader position. Wilkerson produces high quality products such as Valves, as well. Here Wilkerson gained very strong customer base and its competition seems to be moderate now. The firm also succeeded to maintain the actual gross margin around 35%. On the other hand, in the long run the company
Words: 1856 - Pages: 8
Question1 Monthly production costs in Pesavento Company for two levels of production are as follows. | |Cost |3,000 units |6,000 units | | |Indirect labor |$10,000 | |$20,000 | | | |Supervisory salaries |5,000 | |5,000 | | | |Maintenance |4,000 | |7,000 | |
Words: 919 - Pages: 4
(CVP) Formulas: Contribution margin = Sales - Variable expenses (manufacturing and non-manufacturing) Net operating income = Contribution margin - Fixed expenses (manufacturing and nonmanufacturing) Contribution margin ratio = Contribution margin / Sales Break even point (units) = Fixed expenses / Unit contribution margin Break even point (dollar sales) = Fixed expenses / CM ratio Units sales to attain target profit = (Fixed expenses + Target profit) / Unit contribution margin Dollar sales to
Words: 2299 - Pages: 10
Solutions - Zeus Opticals a. Price Variable cost Unit contribution margin Allocated overhead Profit margin Eyepieces $53.00 30.00 23.00 25.50 $(2.50) Binoculars $ 78.00 45.00 33.00 32.30 $ 0.70 Camera Lens $160.00 118.00 42.00 35.70 $ 6.30 In this computation, notice that Zeus’s overhead rate is $17 per labor hour. We first compute the total number of hours as [(16,000 eyepieces × 1.5 hours/unit) + (20,000 binoculars × 1.9 hours/unit) + (3,000 lens× 2.1 hours/unit)]
Words: 1087 - Pages: 5
under alternative courses of action. Compute break-even point and margin of safety ratio, and prepare a CVP income statement before and after changes in business environment. Determine sales mix with limited resources. Determine break-even sales under alternative sales strategies and evaluate results. Compute degree of operating leverage and evaluate impact of operating leverage on financial results. Determine contribution margin, break-even point, target sales, and degree of operating leverage.
Words: 16339 - Pages: 66
Case 7-2 Five Star Tools 4/14/2012 Managerial Accounting Five Star Tools is a small manufacturing firm, founded by Frederick Turner, that produces diamond-coated cutting tools used by jewelers. Production of these chisels and saws involves three major processes. Blanks, tools without diamond coating are cut to size. They are then sent to a chemical bath that prepares them for the coating process. In this process, if the operator finds rough edges or blemishes, he/she smooths and buffs
Words: 1004 - Pages: 5
prepared using a contribution format. The annual report says that the contribution format income statement shown on page 33 is used for internal reporting purposes; but, Benetton has chosen to include it in the annual report anyway. The contribution format income statement treats all cost of sales as variable costs. The selling, general and administrative expenses shown on the absorption income statement have been broken down into variable and fixed components in the contribution format income statement
Words: 844 - Pages: 4
prepared using a contribution format. The annual report says that the contribution format income statement shown on page 33 is used for internal reporting purposes; nonetheless, Benetton has chosen to include it in the annual report. The contribution format income statement treats all cost of sales as variable costs. The selling, general and administrative expenses shown on the absorption income statement have been broken down into variable and fixed components in the contribution format income statement
Words: 901 - Pages: 4
