Contribution Margin And Breakeven Analysis - Essay Example

Only on StudentShare

Extract of sample
Contribution Margin And Breakeven Analysis

This was the wrong decision because she did not consider the fact that despite lower operating profits, Lemon Crme enjoyed higher contribution margin than Real Mint i.e. 0.94 while Real Mint had the contribution margin of 0.64. The right decision should have been that the production of Lemon Crme should continue with the same quantity and its production should not be cut off. The bulk order should be accepted by reducing the current production of Real Mint.
1. If the price offered for the Real Mint is low causing decline in the operating profit OR the price per unit offered can not offset the variable and fixed cost incurred on the production. In the current case, the price per unit of $1.12 is generating the operating profit of $580,000.
2. If the production unit offered for the Real Mint is very high, in other words, in order to produce the required quantity of Real Mint, the production of Lemon Crme should be cut off to its actual position. In that case, the offer should be rejected, as the current price offered per unit is relatively very low than the price of the Lemon Crme and acceptance of the order, will result in the overall lose of operating profit.
If the breakeven volume of Lemon Crme cookies in this new plant is 650,000 packs then she should not accept to buy the new unit. There are several reasons for that. ...Show more

Summary

While considering a large bulk order, Maria should use the concept of contribution margin in a way that the production volume of the product with higher contribution margin should not be cut off because it would possibly result in the overall lose of the total operating profit of the company…
Author : alejandra09
Contribution Margin And Breakeven Analysis essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Contribution Margin And Breakeven Analysis"
with a personal 20% discount.
Grab the best paper

Related Essays

Managerial Accounting
What actually is the trigger that forces a company to go into either profits or losses is the adequate level of sales. Ultimately, this is actually sales level which defines at how many units can earn a company profits, incur losses or remain at no profit, no loss or break even level.
4 pages (1000 words) Essay
Accounting - breakeven analysis
A break-even analysis is conducted in order to understand the relationship between costs, profits and volume. Break-even analysis is very useful for small business as it is very easy to calculate and understand. The break-even analysis helps business managers, particularly those who are involved in a sales-based business, to identify the sales levels at which costs and revenue are equal, thereby neither projecting a profit nor a loss The point at which costs and revenues stand equal is known as the ‘break-even’ point.
7 pages (1750 words) Essay
DRG Patient Classification
This data is sufficient in order to perform a breakeven analysis. The formula to calculate breakeven is fixed costs divided by contribution margin (Garrison & Noreen, 2011). The table below shows a breakeven analysis of the DRG M, DRG J, and DRG P patients attended at Beach Street office of Getwell Clinics.
3 pages (750 words) Essay
Cost, Volume, and Profit Formulas
The Cost-Volume-Profit (CVP) analysis is composed of five components. The five Cost-Volume-Profit components are volume or activity level, unit selling price, variable cost per unit, total fixed costs, and sales mix. The volume component refers to the quantity of goods or services that were sold during a period.
2 pages (500 words) Essay
C-V-P equation.Contribution margin
The major purpose of this model and its application is the predictability of future profits and its change based on changes in either volume or any of the components of costs that it takes into account.
5 pages (1250 words) Essay
Accounting - breakeven analysis
se who are involved in a sales-based business, to identify the sales levels at which costs and revenue are equal, thereby neither projecting a profit nor a loss The point at which costs and revenues stand equal is known as the ‘break-even’ point. Thus this analysis becomes
7 pages (1750 words) Essay
Introduction to Accounting
Examples of variable costs include labor, cost of distribution, raw materials and use of energy in this whisky company. There are differences between the companies with high variable costs and the ones with high fixed costs. These differences are in terms of
4 pages (1000 words) Essay
Guidance on CVP Analysis
The CVP analysis performs three purposes in managerial accounting: calculation of breakeven point; calculation of target income sales; analysis of
1 pages (250 words) Essay
Cost method november
The traditional costing method relies on the volume of a cost driver including direct materials, machine hours and labour time consumed in producing an item when assigning manufacturing overhead. On the other hand, activity-based costing apportions the costs
2 pages (500 words) Essay
Unit Contribution Margin
Assessing the influence on earnings of changes in sales. In particular, it can be used to estimation the decline in profits if sales drop, and so is an standard tool in the making of budgets.
2 pages (500 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT