To calculate the profit and do a CVP analysis, we can use the following information:
Plant capacity: 200,000 units
Variable cost per unit: $20
Selling price per unit: $35
Fixed cost per year: $2,000,000
Calculating Profit
To calculate the profit, we need to subtract the total cost from the total revenue. The total revenue can be calculated by multiplying the selling price per unit by the number of units sold. The total cost can be calculated by adding the fixed cost to the total variable cost, which is the product of the variable cost per unit and the number of units sold.
Total revenue = Selling price per unit x Number of units sold
Total cost = Fixed cost + Variable cost per unit x Number of units sold
Profit = Total revenue - Total cost
We know that the plant capacity is 200,000 units, so let's assume that the company sells all 200,000 units.
Total revenue = $35 x 200,000 = $7,000,000
Total variable cost = $20 x 200,000 = $4,000,000
Total cost = $2,000,000 + $4,000,000 = $6,000,000
Profit = $7,000,000 - $6,000,000 = $1,000,000
Therefore, the profit is $1,000,000.
CVP Analysis
CVP analysis stands for cost-volume-profit analysis. It is a tool used by companies to determine how changes in costs, volume, and price affect their profit. The CVP analysis formula is:
Profit = (Selling price per unit x Volume) - (Variable cost per unit x Volume) - Fixed costs
We can use this formula to calculate the breakeven point, which is the point where the company neither makes a profit nor a loss. At the breakeven point, the total revenue equals the total cost.
Breakeven point = Fixed costs / (Selling price per unit - Variable cost per unit)
Breakeven point = $2,000,000 / ($35 - $20) = 133,333 units
Therefore, the company needs to sell 133,333 units to break even.
We can also use the CVP analysis to calculate the profit at different levels of volume. Let's assume that the company sells 150,000 units.
Profit = ($35 x 150,000) - ($20 x 150,000) - $2,000,000 = $500,000
Therefore, the profit at 150,000 units sold is $500,000.
We can also calculate the margin of safety, which is the amount by which the actual sales exceed the breakeven sales.
Margin of safety = Actual sales - Breakeven sales
Margin of safety = 200,000 - 133,333 = 66,667 units
Therefore, the margin of safety is 66,667 units.