Accounting Questions: First 2 Looks Like This To Give You An

7 Accounting Questionsfirst 2 Look Like This To Give You An Idea Plea

7 Accounting questions First 2 look like this to give you an idea, please open doc to see all 5 questions. Brief Exercise 18-8 Meriden Company has a unit selling price of $780, variable costs per unit of $390, and fixed costs of $256,230. Compute the break-even point in units using the mathematical equation. Break-even point [removed] units Brief Exercise 18-10 For Turgo Company, variable costs are 56% of sales, and fixed costs are $179,600. Management’s net income goal is $104,156. Compute the required sales in dollars needed to achieve management’s target net income of $104,156. Required sales $ [removed]

Paper For Above instruction

The provided questions encapsulate fundamental concepts in managerial and cost accounting, particularly focusing on break-even analysis and target profit sales calculations. These concepts are central to managerial decision-making, enabling managers to determine the sales volumes required to cover costs and achieve specific profit goals. This paper aims to explore these concepts in depth, illustrating their application through the given exercises and highlighting their significance in managerial accounting.

Break-even Analysis: Concepts and Application

Break-even analysis is a vital tool in managerial accounting that helps determine the level of sales at which total revenues equal total costs, resulting in zero profit. At this point, the business covers all fixed and variable costs. The calculation is straightforward and can be performed using the formula:

Break-even point in units = Fixed costs / (Selling price per unit - Variable cost per unit)

In the case of Meriden Company, the data provided allows for direct application of this formula. The selling price per unit is $780, variable costs are $390 per unit, and fixed costs are $256,230. Plugging these into the formula yields:

Break-even units = $256,230 / ($780 - $390) = $256,230 / $390 ≈ 658 units

This calculation indicates that Meriden Company needs to sell approximately 658 units to cover all costs, achieving a zero net profit scenario. This information is crucial for management to set sales targets and develop strategies to reach profitability.

Target Profit Analysis: Determining Required Sales

While break-even analysis informs about the minimum sales volume to avoid losses, managerial decisions often aim for higher profits. Calculating the required sales in dollars to achieve a specific net income involves understanding the contribution margin and fixed costs.

The formula to calculate required sales in dollars is:

Required sales = (Fixed costs + Target net income) / Contribution margin ratio

The contribution margin ratio is derived from:

Contribution margin per unit = Selling price per unit - Variable cost per unit

and the ratio is:

Contribution margin ratio = Contribution margin per unit / Selling price per unit

For Turgo Company, variable costs are 56% of sales. This means the contribution margin ratio is 44% (since 100% - 56%). The fixed costs are $179,600, and the target net income is $104,156.

Applying these values:

Required sales = ($179,600 + $104,156) / 0.44 ≈ $283,756 / 0.44 ≈ $644,263.64

Thus, Turgo Company must generate approximately $644,264 in sales revenue to meet its net income goal.

Importance of Cost-Volume-Profit (CVP) Analysis

These exercises exemplify the importance of CVP analysis in managerial decision-making. CVP analysis enables managers to understand the implications of cost structures, pricing decisions, and sales volume requirements. It also facilitates planning for profit maximization and risk assessment. Accurate calculations ensure that businesses set realistic sales targets and manage costs effectively to achieve strategic goals.

Conclusion

Understanding how to compute break-even points and target sales is fundamental for effective managerial control. The calculations for Meriden and Turgo companies highlight the practical application of these concepts, reinforcing the importance of precise financial analysis in guiding business strategies. Managers rely on these tools to make informed decisions, optimize profit, and sustain competitive advantage in dynamic markets.

References

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