ACCA Applied Skills · Performance Management · Cost-volume-profit analysis (CVP)
Delta Co has a break-even point of 5,000 units. Selling price is $30 per unit and variable cost is $18 per unit. Budgeted sales are 6,500 units. What is the budgeted profit?
Budgeted profit is $18,000. Sales above break-even, the margin of safety of 1,500 units, each earn a contribution of $12 ($30 less $18), because fixed costs are already covered at 5,000 units.
- A$18,000Correct
- B$60,000
- C$30,000
- D$78,000
Explanation
Contribution per unit = $12. Fixed costs = 5,000 x 12 = $60,000. Budgeted contribution = 6,500 x 12 = $78,000. Profit = 78,000 - 60,000 = $18,000. Alternatively, profit = margin of safety 1,500 units x $12 = $18,000.
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