8.3: Statement of Variable Cost, Fixed Cost, and Sales Volume
Learning Outcomes
- Prepare a statement that shows a change in variable cost, fixed cost, and sales volume
As if competition and fixed cost increases weren’t enough, now we just found out our best supplier is raising the cost of a component of our best-selling widget. With the new company also using parts, there is a shortage, giving our supplier the opportunity to get a little more for his parts. Your boss is now in major crisis mode, trying to figure out a way to continue to show a profit with potential lower sales volumes and increasing prices for every imaginable thing! Of course this lands on your shoulders, so let’s get busy.
So now we have:
- A lower selling price at $8 per widget
- Higher fixed costs at $440 per month
- Higher variable costs at $5.50 per widget
It looks as if everything that could go wrong, has gone wrong! Here is the bad news in chart form:
| Cost-Volume-Profit | |||||
|---|---|---|---|---|---|
| Monte Corporation | |||||
| Number Sold | 1 | 50 | 100 | 150 | 200 |
| Price per Item | $8 | $400 | $800 | $1,200 | $1,600 |
| Variable cost per item | $6 | $275 | $550 | $825 | $1,100 |
| Contribution Margin | $3 | $125 | $250 | $375 | $500 |
| Fixed Costs | $440 | $440 | $440 | $440 | $440 |
| Profit (loss) | ($438) | ($315) | ($190) | ($65) | $60 |
Let’s expand our chart a bit now, and see how we can improve profits:
| Cost-Volume-Profit | |||||||
|---|---|---|---|---|---|---|---|
| Monte Corporation | |||||||
| Number Sold | 1 | 50 | 100 | 150 | 200 | 250 | 300 |
| Price per Item | $8 | $400 | $800 | $1,200 | $1,600 | $2,000 | $2,400 |
| Variable cost per item | $6 | $275 | $550 | $825 | $1,100 | $1,375 | $1,650 |
| Contribution Margin | $3 | $125 | $250 | $375 | $500 | $625 | $750 |
| Fixed Costs | $440 | $440 | $440 | $440 | $440 | $440 | $440 |
| Profit (loss) | ($438) | ($315) | ($190) | ($65) | $60 | $185 | $310 |
If we sell more product, we can make more money! Now, you will need to figure out how to make that happen!
Practice Questions