Three years ago, Marissa Moore started a business that creates and delivers holiday and birthday gift baskets to students at the local university. Marissa sells the baskets for $28 each, and her variable costs are $18 per basket. She incurs $12,500 in fixed costs each year.
How many baskets will Marissa have to sell this year if she wants to earn $29,300 in operating income?
Cost-Volume-Profit (CVP) Analysis:
The cost-volume-profit (CVP) analysis is used to figure out the costs incurred and profit earned at different levels of sales volume. Metrics like contribution margin per unit and contribution margin ratio are handy to compute the sales figure in units and dollars.
Answer and Explanation: 1
The calculated number of baskets required to be sold by Marissa to earn $29,300 in operating income is 4,180.
The contribution margin per unit is...
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fromChapter 3 / Lesson 3
Cost-volume profit analysis identifies the ideal production and pricing standards to reach company goals by comparing the cost to sales volume. Learn the formula for this analysis and the inclusion of contribution margin ratios in decision-making.