Cost and Decision-Making Analysis - Assignment Example

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Cost and Decision-Making Analysis

The formula for calculating the contribution margin is as follows: Contribution margin= Fixed cost per unit – Variable cost per unit. This provides sufficient information to facilitate the calculation of break-even point in total sales dollars. The formula for calculating the break-even point in total sales dollars is as follows: B/E point (in total sales dollars) = Fixed Cost ? P/V ratio In a multiproduct environment the assumption is that the sales mix remains constant (Globusz n.d; n.d.). The sales mix is referred to as the relative proportion of each product sold to the total sales value. This can be expressed in the form of a ratio or in the form of a percentage. The contribution per unit for each product is calculated as follows: Contribution = selling price – variable cost Cv = SPv – VCv = $1.65 – $1.25 = $0.40 Cm = SPm – VCm = $1.50 - $0.70 = $0.80 Cn = SPn – VCn = $0.85 - $0.25 = $0.60 The subscripts v, m and n relates to Velcro, Metal and Nylon respectively. Contribution based on the relative weight in the sales mix = Contribution per unit x quantity. Piedmont Fasteners normally produce as total of 700,000 units of clothing fasteners consisting of 100,000 units from Velcro, 200,000 units from Metal and 400,000 units of nylon. ...Show more


Cost and Decision-making Analysis Name Institution Instructor Date Solution to Question 1 According to Globusz (n.d.) break-even point is the level of output or sales where neither a loss nor a profit is made. That is where contribution is equal to fixed cost…
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