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Cost and Decision-Making Analysis
Finance & Accounting
Pages 5 (1255 words)
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.
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; unf.edu 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. ...
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