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Relationship of cost and sales volume

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Explain (utilizing specific examples) the relationship of costs and sales volume as it affects profitability.

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Solution Summary

The solution examines the relationship of cost and sales volume as it affects profitability. The expert utilizes specific examples.

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Explain (utilizing specific examples) the relationship of costs and sales volume as it
affects profitability.

Costs and sales volume is related to each other as when there is increase in sales volume, cost will also increase and it will affect the profitability of the company. For example, X firm produces and sells 10000 units of product A in a month.
Cost structure of product A is as follows:
Direct material $ 4 per unit
Direct labour $ 3 per unit
Variable manufacturing overhead per unit $ 2 per unit
Variable selling expenses per unit $ 1 per unit
Fixed manufacturing cost $ 6000 per month
Fixed selling cost $ 10000 per month

Selling price per unit $ 12
Total
Profitability statement per unit 10000
sales 12 120000
Less:variable cost
Direct ...

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