Cost Behaviour

Analysis Exercise

Cindy works for a small manufacturing company which makes only one product. The Christmas season accounts for 45% of annual sales. The product sells for $49 each. On January 2, the accounting department provided the management team with the following unit cost information based on December's results:

DM$10

DL3

VOH2

FOH12

Total unit cost$27

Cindy was elated. "We make a profit of $22 on every unit we sell. That means we have nothing to worry about. We are going to make lots of money no matter what."

Is Cindy correct? Explain your answer.