Foot Design Company specializes in making designers shoes in Lahore and Karachi. It sends Shoes to its agent - Shoe Mart. Company sells one article at Rs.900. Until last month, Foot Design paid Shoe Mart a commission of 10% of the shoe price paid by each customer. This commission was Shoe Mart’s only source of revenues. Shoe Mart’s fixed costs are Rs.14, 000 per month (for salaries, rent, and so on), and its variable costs are Rs.20 per shoe purchased. Foot Design Company has just announced a revised payment schedule for all agents. It will now pay agents a 10% commission per shoe up to a maximum of Rs.50. An article costing more than Rs.500 generates only Rs.50 commission, regardless of the shoe price.
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|GDB #2||Dated: Jul 14, 14|
Graded Discussion Board
Cost & Management Accounting (MGT402)
This is to inform that Graded Discussion Board (GDB) No. 02 will be opened on July 15, 2014for discussion and last date for posting your discussion will be July 21, 2014.
Topic/Area for Discussion
“ Cost Volume Profit Analysis(Contribution Margin Approach)”
This Graded Discussion Board will cover 29,30,31 lessons.
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Definition of 'Cost-Volume Profit Analysis'
A method of cost accounting used in managerial economics. Cost-volume profit analysis is
based upon determining the breakeven point of cost and volume of goods. It can be useful
for managers making short-term economic decisions, and also for general educational
explains 'Cost-Volume Profit Analysis'
Cost-volume profit analysis makes several assumptions in order to be relevant. It often
assumes that the sales price, fixed costs and variable cost per unit are constant.
Running this analysis involves using several equations using price, cost and other
variables and plotting them out on an economic graph.
CVP analysis has following assumptions:
All cost can be categorized as variable or fixed.
Sales price per unit, variable cost per unit and total fixed cost are constant.
All units produced are sold.
Where the problem involves mixed costs, they must be split into their fixed and variable
component by High-Low Method, Scatter Plot Method or Regression Method.
CVP Analysis Formula
The basic formula used in CVP Analysis is derived from profit equation:
px = vx + FC + Profit
In the above formula,
p is price per unit;
v is variable cost per unit;
x are total number of units produced and sold; and
FC is total fixed cost
Besides the above formula, CVP analysis also makes use of following concepts:
Contribution Margin (CM)
Contribution Margin (CM) is equal to the difference between total sales (S) and total
variable cost or, in other words, it is the amount by which sales exceed total variable
costs (VC). In order to make profit the contribution margin of a business must exceed its
total fixed costs. In short:
CM = S − VC
Unit Contribution Margin (Unit CM)
Contribution Margin can also be calculated per unit which is called Unit Contribution
Margin. It is the excess of sales price per unit (p) over variable cost per unit (v).
Unit CM = p − v
Contribution Margin Ratio (CM Ratio)
Contribution Margin Ratio is calculated by dividing contribution margin by total sales or
unit CM by price per unit.
A cost accounting concept that allows a company to determine the profitability of individual products.
It is calculated as follows:
Product Revenue - Product Variable Costs
The phrase "contribution margin" can also refer to a per unit measure of a product's gross operating margin, calculated simply as the product's price minus its total variable costs.
can i get the solution please......:)
Shazia zaman you can not.... just idea....
for question 1:
part a) 200 shoes
part b) 300 shoes
for question 2:
part a) 467 shoes
part b) 700 shoes
can you please show the rough working of this
10% commission ko kesy adjust karna hai?
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