Question #1: Explain in detail to a non-accounting person how fixed and variable costs per unit...

Question #1: Explain in detail to a non-accounting person how fixed and variable costs per unit respond to volume increases? Be detailed and give an example

Question #2: The owner of a business is generally only interested in making money not breaking even. Explain the value of break-even analysis - in what ways can a company benefit from using Break-Even analysis?

Question #3: Assume P's Bakery Shop has fixed costs per month of $3,600 and variable costs are 55% of sales. What amount of monthly sales allows the shop to break-even?

Solutions

Expert Solution

3-
contribution margin ratio = (1-variable cost ratio)	(1-.55)	0.45
total fixed cost		3600
break even point in sales in dollar	3600/.45	8000

1-	As the level of production changes the fixed cost per unit will change and variable cost per unit will remains the same. As the level of production will increase, variable cost per unit will remain the same and fixed cost per unit will decrease and if the production level will decrease fixed cost per unit will increase and variable cost per unit remains the same irrespective of level of production.

2-	Break even analysis refers to cost volume profit analysis where effect of change in volume on profit is studied. It is the level of sales where all the cost whether fixed or variable are recovered and business in in the position of no profit or loss. A business manager can make a decision on how much to produce to recover the cost and effect of change in quantity on the profitability of the company.

ekkarill92 answered 1 year ago

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