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List Three Assumptions you Made in Cost Volume Profit (CVP) Analysis - Accounting and Finance Assignment Help

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VisionVase Inc. used to sell 20,000 vases per year mainly to small furniture stores until six months ago, when the vases were sold for the first time to large discount retailers. The vases were sold out immediately, and enough orders were received to sell 50.000 units by the end of the year July 31, 2021. 
Variable costs per vase is $7.50 and the fixed costs amount to $450,000 per year. Each vase sells for $27.5. Volume of sales, at the current price, is expected to increase in the year 2022. VisionVase has maximum production capacity of 90,000 vases. 
With the increased sales volume, CFO is considering the following two options to improve profitability: i) reduce variable costs to $5 OR ii) reduce fixed costs to $300,000 Required: 
a) Make a recommendation to CFO about which option he should choose based on year 2021 sales. Support your recommendation with calculations showing him how profitability will change with each option. 4 marks 
b) Do you expect your answer to the part (a) to change if sales volume continue to increase? If yes, at what volume of sales would your recommendation on the above two options change? 3 marks 
c) List three assumptions you have made in the above Cost Volume Profit (CVP) analysis? 3 marks 

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  • Posted on : August 02nd, 2019
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