...Break Even Analysis Introduction Break-even analysis is a technique widely used by production management and management accountants. It is based on categorizing production costs between those which are "variable" (costs that change when the production output changes) and those that are "fixed" (costs not directly related to the volume of production). Total variable and fixed costs are compared with sales revenue in order to determine the level of sales volume, sales value or production at which the business makes neither a profit nor a loss (the "break-even point"). The Break-Even Chart In its simplest form, the break-even chart is a graphical representation of costs at various levels of activity shown on the same chart as the variation of income (or sales, revenue) with the same variation in activity. The point at which neither profit nor loss is made is known as the "break-even point" and is represented on the chart below by the intersection of the two lines: In the diagram above, the line OA represents the variation of income at varying levels of production activity ("output"). OB represents the total fixed costs in the business. As output increases, variable costs are incurred, meaning that total costs (fixed + variable) also increase. At low levels of output, Costs are greater than Income. At the point of intersection, P, costs are exactly equal to income, and hence neither profit nor loss is made. Fixed Costs Fixed costs are those business costs that are not...
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...This essay serves to discuss the various uses of break even analysis in financial entrepreneurship and how the breakeven point is affected by the choice of labor intensive or capital intensive manufacturing technique. The essay will commence by defining the key term breakeven analysis and will proceed by explaining the uses, limitations and as well as how the breakeven point is affected bythe manufacturing facility (LABOR INTENSIVE AND CAPITAL INTENSIVE). Breakeven analysis is a study of the mathematical relationship between costs and sales revenues, under a given set of assumptions regarding fixed costs and variable costs. It is an integral part of financial planning performed either by using a formula or a chart. In financial analysis ,the objective is to determine (in manufacturing) number of products that must be sold ata given price to cover the costs ,or (in project financing) number of months or years required by forecasted total net cash flow to equal estimated total project cost. The breakeven formula is represented below; BREAK EVEN POINT = FIXED COSTS / (UNIT SELLING PRICE – VARRIABLE COST) Using the above formula, the business can determine how many units it needs to produce in order to break even. Once the business has reached this point, in sales or units sold, all cost has been recovered. Beyond this point every additional unit sold will result in increasing profit for the business. Break even analysis is therefore been considered as a tool widely used across...
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...Changing Consumer Behaviour in India Possibly the most challenging concept in the marketing is to deal with understanding the consumer behaviour. The changes that occurred in consumer behaviour of India post liberalization . There are many factors that are affect the consumer behaviour and strategies should be formed to adopt those changes and achieve the long term growth and success. The attitude of Indian consumers has undergone a major transformation over the last few years. The Indian consumer today wants to lead a life full of luxury and comfort. He wants to live in present and does not believe in savings for the future. An important and recent development in India’s consumerism is the emergence of the rural market for several basic consumer goods. Consumer behavior is affected by a lot of variables, ranging from personal motivations, needs, attitudes and values, personality characteristics, socio-economic and cultural background, age, sex, professional status to social influences of various kinds exerted by family, friends, colleagues and society as a whole. We have developed a HSSE model that is: Health, Safety, Sophistication and Environment of Indian consumer. It is found that that today’s consumers strictly follow their culture, tradition and values, as a result of which foreign companies were forced to give an Indian touch to them in order to succeed in India. McDonalds, MTV, Pepsi, Star TV, Coca Cola India and many more had to Indianise themselves...
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...CVP And Break-Even Analysis Paper CVP And Break-Even Analysis Paper Looking into opening a small business can be a daunting task but, with various opportunities for buying into a franchise, becoming a small business owner seems to be a reality for some. Each franchise provides various information pieces about their franchise to attract new owners. When someone is looking to invest in a franchise, doing your own analysis to validate the information provided by the franchise is critical in understanding whether or not the franchise is going to be as profitable as you would like. One such franchise is Snap fitness out of Minnesota and knowing the fixed cost of operating the franchise we can determine how many members are needed to break even. Also included is an analysis of achieving a $10,000 net income for a month of operations. To be a valid analysis we have included five examples of variable cost associated with a fitness center. Variable Cost As the owners of a new business, our ultimate goal is to make a profit. Profit can be measured in many ways and there are many complex techniques that can be used to calculate how much of a product or service must be sold to produce a profit. Cost Volume Profit analysis or CVP is one of the most useful ways for managers to understand the relationship between cost, volume, and profits and make competent management decisions. CVP analysis focuses on five areas: • Unit selling prices • Variable cost per unit ...
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...Cost Structure; Target Profit and Break Even Analysis Question 1: Compute Pittman Company’s break-even point in sales dollars for next year assuming: a. The agents’ commission remains unchanged at 15% $12,000,000 in sales is needed to break even while employing an outside sales force with commissions of 15% of sales. b. The agents’ commission rate is increased to 20% $13,714,286 in sales is needed to break even while employing an outside sales force with commissions of 20% of sales. c. The company employs its own sales force. $15,000,000 in sales is needed to break even while employing the company's own sales force with commissions of 7.5% of sales. Before Pittman Company’s break-even point in sales can be determined, we must initially “reformat” the provided Budgeted Income Statement for the Year Ended December 31 (for the next year) to reflect a Contribution Income Statement format. The reason for this application is to separate the Variable and Fixed costs associated in selling telecommunications equipment to derive pertinent data needed to determine break even sales. The restructuring of each Income Statement may be found in Appendix A of this report. Reformatting the Income Statement allows us to determine first, the Contribution Margin. The Contribution Margin is significant in determining Break-even point whether by the number of units to break even or the number of sales dollars needed to break-even. After determining the Contribution...
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...TULSA MEMORIAL HOSPITAL Break-Even Analysis 1. Using the historical data as a guide, construct a pro forma (forecasted) profit and loss statement for the clinic's average month for all of 2014 assuming the status quo. With no change in volume (utilization), is the clinic projected to make a profit? -No, the clinic is projected to experience a loss. Pro Forma Average Month: | | | | | | | | Number of visits | | 1,350 | | | | | Net revenue | | $54,888 | | | | | Salaries and wages | | $13,542 | Physicians fees | | 18,000 | Malpractice insurance | | 3,215 | Travel and education | | 602 | General insurance | | 843 | Subscriptions | | 0 | Electricity | | | 1,077 | Water | | | 139 | Equipment rental | | 105 | Building lease | | 12,500 | Other operating expenses | 8,038 | Total operating expenses | $58,059 | | | | | Net profit (loss) | | ($3,171) | | | | | Gross margin (%) | | -5.8% | 2. Now consider the clinic's situation without the new marketing program. How many additional daily visits must be generated to break even? Construct a breakeven graph that can be included in your report. The clinic must generate 20 additional daily visits to break even. 3. Repeat the Question 2 analysis, but now assume that the new marketing program is implemented. The clinic must generate 28 additional daily visits to break even 4. Now focus solely...
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...Analyse and evaluate the usefulness of a Break-Even analysis for a business. 14 marks A break even analysis is an analysis made by the entrepreneur of a business based on the cost of production and the predicted sales that will be made. The point at which the amount of sales meets the production costs is known as the breakeven point. Businesses aim to have a low breakeven point, so it isn’t too difficult to make a profit, the goal of any private-sector business. However, there are several constraints to using a break-even analysis. The first and main constraint is that it is just a prediction based upon what could happen in the future with the business. There are no actual sales figures for the time period that the analysis is covering, and, for this reason, makes it being a prediction a major constraint. Alongside this, the assumption that all products are sold is very unrealistic in business, for example trends may change which would reduce demand, or a competitor may be able to produce the same products for a cheaper price, which would mean that not all of the products would be sold. A third and final constraint of the analysis is that it oversimplifies business. It makes business appear to be an easy world to crack, for example making assumptions about costs may be optimistic because the entrepreneur knows the level of profit that they want from the business, which would reduce the reliability of the analysis, and, in turn make it less useful, because the assumptions would...
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...Tulsa Memorial Hospital (TMH) Break-Even Analysis (Case 6). Brandon Harley, TMH's CEO is concerned about the Urgent Care Center's overall financial soundness. He has 3 options to consider one of them (1) continue to operate as it; (2) close it down; or (3) continue to operate, accompanied by the expanded marketing effort. Positive considerations: 1- TMH has reputation for quality care 2- Urgent care Centers are increasingly visited by patients who need immediate treatment for illness “Wall Street Journal”. 3- One competing center had recently closed. 4- Capacity to see 85 patients/day 5- The center does not have seasonal utilization pattern 6- Expanded marketing program requires no capital investment. Negative Considerations: 1- The center has been staffed at the bare minimum, so any increase in the number of patient visits would require immediate administrative and medical staffing increases. 2- The center on long term lease, with cancellation penalty of 3 months’ rent or $37,500. 3- TMH's major competitor had just bought the city's largest primary care practice, and planning for more acquisitions. 4- Marketing expansion requires marketing assistant and advertising coasts. To consider these positive and negative points especially the closure of competing center and the new acquisition plan by the major competitor, total average that includes 2013 and Jan/Feb 2014 will be used in this analysis to answer the following questions: ...
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...Profit And Break Even Analysis; Case 4-33; Managerial Accounting Case 4-33: Cost Structure; Target Profit and Break Even Analysis Question 1: Compute Pittman Company’s break-even point in sales dollars for next year assuming: a. The agents’ commission remains unchanged at 15% $12,000,000 in sales is needed to break even while employing an outside sales force with commissions of 15% of sales. b. The agents’ commission rate is increased to 20% $13,714,286 in sales is needed to break even while employing an outside sales force with commissions of 20% of sales. c. The company employs its own sales force. $15,000,000 in sales is needed to break even while employing the company's own sales force with commissions of 7.5% of sales. Before Pittman Company’s break-even point in sales can be determined, we must initially “reformat” the provided Budgeted Income Statement for the Year Ended December 31 (for the next year) to reflect a Contribution Income Statement format. The reason for this application is to separate the Variable and Fixed costs associated in selling telecommunications equipment to derive pertinent data needed to determine break even sales. The restructuring of each Income Statement may be found in Appendix A of this report. Reformatting the Income Statement allows us to determine first, the Contribution Margin. The Contribution Margin is significant in determining Break-even point whether by the number of units to break even or the number...
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...4-33: Cost Structure; Target Profit and Break Even Analysis Question 1: Compute Pittman Company’s break-even point in sales dollars for next year assuming: a. The agents’ commission remains unchanged at 15% $12,000,000 in sales is needed to break even while employing an outside sales force with commissions of 15% of sales. b. The agents’ commission rate is increased to 20% $13,714,286 in sales is needed to break even while employing an outside sales force with commissions of 20% of sales. c. The company employs its own sales force. $15,000,000 in sales is needed to break even while employing the company's own sales force with commissions of 7.5% of sales. Before Pittman Company’s break-even point in sales can be determined, we must initially “reformat” the provided Budgeted Income Statement for the Year Ended December 31 (for the next year) to reflect a Contribution Income Statement format. The reason for this application is to separate the Variable and Fixed costs associated in selling telecommunications equipment to derive pertinent data needed to determine break even sales. The restructuring of each Income Statement may be found in Appendix A of this report. Reformatting the Income Statement allows us to determine first, the Contribution Margin. The Contribution Margin is significant in determining Break-even point whether by the number of units to break even or the number of sales dollars needed to break-even. After determining the Contribution Margin...
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...FINAL PROJECT 12/17/2015 Case 5-33 Problem 1) a) Break-even point in dollar sales @ 15% commission fixed expenses/CM ratio = $4,800,000/.40 = $12,000,000 b) If the commission increases to 20%: $4,800,000/.35 = $13,714,286 c) If the company uses its own sales force: $7,125,000/.475 = $15,000,000 Problem 2) $ Sales to attain target = tgt income before taxes + fixed expenses CM ratio $1,600,000 + $4,800,000/0.35 = $18,285,714 Problem 3) x = total sales revenue .65x + $4,800,000 = .525x + $7,125,000 .125x = $2,325,000 X = $2,325,000 / .125 X = $18,600,000 Problem 4) Part a) CM 15% commission = $6,400,000 / income before taxes $1,600,000 = 4 Part b) 20% =$5,600,000 / $800,000 = 7 Part c) In-house sales force = $7,600,000 / $475,000 = 16 Problem 5) The company should continue to use the sales agents for at least one more year based on the fact that the use of the sales agents wouldn’t effect net income quite as much. Also, with the use of an in-house sales force, the company would have to reach sales of $18,600,000/year and this level wouldn’t be reached for at least one more year. Finally, the in-house sales force plan is highly leveraged, so when sales do reach $18.6 million, that leverage would assist the company quite a bit. So, at this point, till that 18.6 million sales goal is reached, the company should stay with the outside sales agents...
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...Budgets & Break-even analysis. P6 Illustrate the use of budgets as a means of exercising financial control of a selected company Fixed Costs- The running costs of a business such as rent and wages. Variable Costs- Costs that varies with the level of output or sales.An example of a variable cost would be direct labor costs. The breakeven point to two decimal places is 6.12 (£68) | Fixed Cost | Variable Costs | Total | Revenue | Profit/Loss | 0 | 416 | 0 | 416 | 0 | -416 | 1 | 416 | 12 | 428 | 80 | -348 | 2 | 416 | 24 | 440 | 160 | -280 | 3 | 416 | 36 | 452 | 240 | -212 | 4 | 416 | 48 | 464 | 320 | -144 | 5 | 416 | 60 | 476 | 400 | -76 | 6 | 416 | 72 | 488 | 480 | -8 | 7 | 416 | 84 | 500 | 560 | 60 | 8 | 416 | 96 | 512 | 640 | 128 | 9 | 416 | 108 | 524 | 720 | 196 | 10 | 416 | 120 | 536 | 800 | 264 | Three ways in which the Hotel Excellent can attract more customers for 2011 and reasons why the method would be effective: 1) Cut down on the variable and fixed costs. The hotel’s costs have risen which has resulted in more loss than profit, therefore if the hotel lower their costs there may be more room for profit. The hotel could get their supplies from cheaper suppliers, could switch companies for their electricity, gas, water and lay off staff if a high volume of staff is not essential. 2) To increase sales the Hotel Excellent could advertise and promote themselves more; this will bring publicity and attention to the hotel. Advertising...
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...Medical community technological initiatives Proposal Outline 1. Subject of Course Project: To analyze current medical technology infrastructures and insurance accurate processing demands while recommending improvements for doctor and patient level reports, bills, claims, records and data exchange and enhancements through the use of technology and business re-engineering initiatives. 2. Business Problem Statement: As compared with other sectors of society who have successfully integrated IT into their business practices, the field of medicine has not been as aggressive in its approach to IT integration. Due to the rising cost of healthcare and increasing demands by patients and insurers for better quality care, healthcare organizations are being driven to implement IT to improve results. Healthcare is a very “information-intensive, confidential and sensitive industry,” that remains highly fragmented and inefficient. The use of technology in delivering clinical care, processing insurance claims and performing administrative functions has the potential to yield both cost savings and improvements in the care itself. The automation of electronic medical records and claims processing can be shown to save time and money as well as improve the effectiveness of making pertinent patient information and medical charges readily accessible to healthcare providers and patients. Sensitivity to patient privacy rights...
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...Introduction to Management Science, 10e (Taylor) Chapter 1 Management Science 1) Management science involves the philosophy of approaching a problem in a subjective manner. Answer: FALSE Diff: 1 Page Ref: 2 Main Heading: The Management Science Approach to Problem Solving Key words: scientific approach 2) Management science techniques can be applied only to business and military organizations. Answer: FALSE Diff: 1 Page Ref: 2 Main Heading: The Management Science Approach to Problem Solving Key words: scientific approach, problem solving 3) Once management scientist makes his or her decision and recommendation to management, then typically, his or her involvement with the problem is finished. Answer: FALSE Diff: 2 Page Ref: 6 Main Heading: The Management Science Approach to Problem Solving Key words: management science, management scientist 4) A variable is a value that is usually a coefficient of a parameter in an equation. Answer: FALSE Diff: 1 Page Ref: 3 Main Heading: The Management Science Approach to Problem Solving Key words: variable 5) Parameters are known, constant values that are usually coefficients of variables in equations. Answer: TRUE Diff: 1 Page Ref: 4 Main Heading: The Management Science Approach to Problem Solving Key words: parameter 6) Data are pieces of information from the problem environment. Answer: TRUE Diff: 1 Page Ref: 4 Main Heading: The Management Science Approach to Problem Solving Key...
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...Introduction In this assignment, I will evaluate the reliability of break-even analysis in estimating budgeted activity levels for a selected organisation. Break – Even Analysis Break even analysis is reliable as it is made from the budget and it gives a financial structure to the business. The data used for break-even, the business try to make the data as accurate as possible. They make this data depending on the previous year’s financial report. That’s why break-even is reliable to estimate current year’s results. In a short run, break-even analysis can be accurate. There are some limitations of break-even as well. For example, it cannot give accurate results if the data used for it is predicted. Data such as change in direct cost or indirect cost can have an impact on break-even analysis. This means that the results are going to be very different from the actual result. So, in the long run break even will not be reliable. Furthermore, if the company is selling more than one product, it will become really hard for the company to carry out break-even analysis. This is because; all the different products are going to have different prices meaning that the company will have to create different financial accounts for each product they sell. The break-even analysis has to be different for each one as well. Also, a change in the selling price is going to have huge effect on break-even analysis. If the selling price changes, the whole financial data will change as well. If the...
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