Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 24

Basic Decision Analysis Using CVP

Cambridge, Inc., is considering the introduction of a new calculator with the following price and cost characteristics:

Sales price	$ 18 each
Variable costs	10 each
Fixed costs	20,000 per month

Required

a. What number must Cambridge sell per month to break even?

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b. What number must Cambridge sell to make an operating profit of $16,000 for the month?

Step 1 of 7

Sales revenue

Sales revenue is the revenue earned by the company by selling its goods or providing its services. The sales revenue is calculated as number of units sold multiplied by the sale price per unit.

Variable costs

Variable costs are the costs which varies with the output of quantity produced that is if the number of units produced increases then the variable cost would also increase.

Fixed costs

Fixed costs are cost which does not varies with the number of units produced and would remain fixed to the extent of producing capacity of the company and any goods produced in excess of capacity would lead to increase in fixed costs. If units are produced below the production capacity of the company still the costs incurred would remain fix and would not change.