Question
In: Accounting
Cost-volume-profit analysis can also be used in making personal financial decisions. For example, the purchase of...
Cost-volume-profit analysis can also be used in making personal financial decisions. For example, the purchase of a new car is one of your biggest personal expenditures. It is important that you carefully analyze your options.
Suppose that you are considering the purchase of a hybrid vehicle. Let's assume the following facts: The hybrid will initially cost an additional $4,500 above the cost of a traditional vehicle. The hybrid will get 40 miles per gallon of gas, and the traditional car will get 30 miles per gallon. Also, assume that the cost of gas is $3.60 per gallon.
Using the facts above, answer the following questions.
(1) What is the variable gasoline cost of going one mile in the hybrid car? What is the variable cost of going one mile in the traditional car?
(2) Using the information in part (a), if “miles” is your unit of measure, what is the “contribution margin” of the hybrid vehicle relative to the traditional vehicle? That is, express the variable cost savings on a per-mile basis.
(3) How many miles would you have to drive in order to break even on your investment in the hybrid car?
(4) What other factors might you want to consider?
Solutions
ekkarill92 answered 2 years agoRelated Solutions
Provide examples of how cost–volume–profit analysis can be used for decision-making.
Provide examples of how cost–volume–profit analysis can be used
for decision-making.
Briefly describe the cost-volume-profit analysis model and discuss how it can be used. Also, briefly explain...
Briefly describe the cost-volume-profit analysis model and
discuss how it can be used. Also, briefly explain the limitation of
basic cost-volume-profit analysis as it relates to an
organization’s sales mix
How is Cost-Volume-Pricing analysis useful in making pricing and product mix decisions? Why is it important...
How is Cost-Volume-Pricing analysis useful in making pricing and
product mix decisions? Why is it important that we have a good
understanding of the way costs behave (fixed / variable / relevant
range) in order for the tool to be effective? What makes it
difficult to get this understanding in the real world and what
tools can we use to help us get as close as possible. When is the
contribution margin ratio approach to CVP analysis most useful?
Why?
Making decisions often involves financial and nonfinancial factors. Provide a hypothetical example from your personal life...
Making decisions often involves financial and nonfinancial
factors. Provide a hypothetical example from your personal life of
a situation in which you would consider both financial and
nonfinancial factors. What factors would be considered?
Making decisions often involves financial and nonfinancial factors. Provide a hypothetical example from your personal life...
Making decisions often involves financial and nonfinancial
factors. Provide a hypothetical example from your personal life of
a situation in which you would consider both financial and
nonfinancial factors. What factors would be considered?
Making decisions often involves financial and nonfinancial factors. Provide a hypothetical example from your personal life...
Making decisions often involves financial and nonfinancial
factors. Provide a hypothetical example from your personal life of
a situation in which you would consider both financial and
nonfinancial factors. What factors would be considered?
2. Cost Volume Profit Analysis or Break Even Analysis You are given the financial information below:...
2. Cost Volume Profit Analysis or Break Even
Analysis
You are given the financial information below:
Tom’s Treasures Income Statement . . .For Year Ended
12/31/17
Sales (85,000 units) . . ... . . .$5,500,000
Variable Expenses . . . . . . .$2,475,000
Contribution Margin . . . . . . . $3,025,000
Fixed Expenses. . . . . . . . . .$1,785.000
Net Operating Income . . . . . . $1,240,000
Additional Formulas Needed:
1. Sales...
Cost Behavior and Cost-Volume-Profit (CVP) Analysis are very important and useful concepts and tools used by...
Cost Behavior and Cost-Volume-Profit (CVP) Analysis are very
important and useful concepts and tools used by management and
other decision-makers. CVP analysis and one's understanding of cost
behavior is helpful for business planning and controlling
purposes.
Due to the temporary downturn in the economy, sales revenues
have decreased by 50% to 60% for many restaurants and eateries,
retails stores and service-oriented businesses (e.g., hair salons )
thus affecting profitability and the ability to continue business
operations. In order to survive the...
create an example that illustrates the usefulness of cost-volume-profit analysis for small business owners. In your...
create an example that illustrates the usefulness of
cost-volume-profit analysis for small business owners. In your
example, ensure that you illustrate calculation of: the
contribution margin in dollars, the contribution margin ratio, the
break even point in units and dollars, and the margin of
safety.
QUESTION ONE: COST–VOLUME–PROFIT (CVP) ANALYSIS (a) Identify the SIX underlying assumptions of cost–volume–profit (CVP) analysis. (b)...
QUESTION ONE: COST–VOLUME–PROFIT (CVP)
ANALYSIS
(a) Identify the SIX underlying assumptions of
cost–volume–profit (CVP) analysis.
(b) Select ANY THREE assumptions given in (a) and discuss the
difficulties that could arise in CVP analysis if these assumptions
do not hold.
QUESTION TWO: PUTTING ACCOUNTING DECISIONS IN
CONTEXT
(a) Describe TWO financial and TWO non-financial performance
indicators which may be useful for users of the reports of a public
benefit entity (e.g. a museum).
(b) If you were a member of the...
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