8.3: Statement of Variable Cost, Fixed Cost, and Sales Volume

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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

https://assessments.lumenlearning.co...sessments/9623

Statement of Variable Cost, Fixed Cost, and Sales Volume. Authored by: Freedom Learning Group. Provided by: Lumen Learning. License: CC BY: Attribution