Cost volume profit analysis chapter 3 solutions

Discussion Topic: Cost-Volume-Profit Analysis

Read Concepts in Action, “Cost-Volume-Profit Analysis Makes Subway’s $5 Foot-Long Sandwich a Success” in Chapter 3.

What information provided by a variable costing income statement is used in computing the break-even point?
Explain how Subway used CVP analysis in its strategy of lowering prices to boost profits.
Provide examples of the company’s fixed and variable costs
Just do response each posted # 1 to 3 down below only.

Posted 1

Hello Class,

At a breakeven point, a company’s revenue is equal to the total cost. Companies use Cost-Volume-Profit (CVP) analysis to calculate the units that need to be sold to break even or achieved a target income. It is a powerful tool that is used widely in business to help managers make better decisions and figure the retail price (Datar & Rajan, 2017, p.78). Also, a variable costing income statement provides all variable expenses that are subtracted from revenue to result in contribution margin. The expenses include fixed and variable cost needed to determine a breakeven. In addition, sales volume and selling price do affect the profit.

Subway used the CVP analysis in its strategy of lowering prices to boost profits. When Subway’s operating income equal to zero, it reaches the breakeven point. Subway used the lower selling price strategy to increase the sale volume. In other words, the higher the number of sales, the more profit it would make.

Examples of Subway’s fixed costs are rent, franchise license, and manager’s salary, etc. The variable costs include many types of costs such as utilities, supplies like cups, straws, plastic utensils, and sub sandwich bread, toppings, etc.