Dewqas Limited Companys Cost-Volume-Profit Analysis

The contribution margin per unit, total fixed costs, the breakeven point in units, and total expected profit

The contribution margin per unit, total fixed costs, breakeven level, and total expected profit of Dewqas Limited based on its decisions of reducing the selling price of its product and installing new machinery are calculated in the following table:

Table 3: CVP Analysis.

Sales	1,519,875
Variable Expenses	535,500
Contribution Margin	984,375
Fixed Expenses	311,000
Profit	673,375
Break-Even	49,760
Contribution Margin per Unit

The expected profit at various sales levels

The profit-volume analysis of Dewqas Limited is given in the following table:

Table 4: Profit-Volume Analysis.

Sales (units)	0	50,000	100,000	150,000	200,000
Expected Profit (no change)	(243,000)	12,000	67,000	522,000	777,000
Expected profit (machinery & production methods updated)	(311,000)	1,500	314,000	626,500	939,000

The profit-volume charts of no change and decisions scenarios are given in the following:

A brief recommendation to management advising on the recommended course of action

Dewqas Limited is considering different options to improve its profitability, including reducing the selling price of its product and updating its existing machinery and production methods. These two decisions are independent of each other and can be implemented together. Lowering the selling price can increase the companys sales from 150,000 units to 157,500 units. However, the company will earn less revenue from its marginal sales as the price will reduce from $9.8 per unit to $9.65 per unit.

The decision to update machinery and production methods will also reduce the variable cost of production from $4.7 per unit to $3.4 per unit. The Cost-Volume-Profit analysis shows that the company could generate a higher contribution margin by implementing these decisions. This means that the profitability of the company could improve by selling more units. However, the decision to update machinery and production methods will increase the companys fixed costs from $243,000 to $311,000. This implies that the breakeven level (units) will increase from 47,647 to 49,760 if the company makes the proposed changes in its selling price and production.

A high breakeven level is not recommended as the company needs to cover its high fixed costs before achieving a profit. However, the profit-volume analysis shows that the company will have a profit of $626,500, which is more than the current profit of $522,000 by selling 150,000 units. This shows that these decisions could improve the businesss profitability, and the management should accept these decisions.