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CVP Analysis fixed cost question

  • 1.  CVP Analysis fixed cost question

    Posted 23 days ago

    Question: Bruell Electronics Co. is developing a new product, surge protectors for high- voltage electrical flows. The cost information below relates to the product:

    Unit Costs

    Direct materials $3.25

    Direct labor 4.00

    Distribution .75

    The company will also be absorbing $120,000 of additional fixed costs associated with this new product. A corporate fixed charge of $20,000 currently absorbed by other products will be allocated to this new product.

    My question: Why are we not considering $20,000 in the fixed cost while calculating break even sales?

    Nupur Mahajan
    Hartford CT United States