Write 6 page essay on the topic : Cost-Volume-Profit (CVP) Analysis.
It relates to fixed and variable costs in the sense that total cost is a summation of fixed and variable cost which is used in the calculation of average cost.
Yes, the profit generated will be used to absorb the fixed overhead charged. This is because the new facility will be used actively in increasing units produced and the fixed overheads are apportioned accordingly. The incremental fixed costs of $50,000 Leads to incremental revenue of $90,000. The cost of the new facility will be capitalized over its useful life to cater for its depreciation.
The company should reject the new order since it will not lead to incremental cash flows to the company. The operating profit generated by the new order is zero hence not advisable considering that a new machine is