...CVP ANALYSIS CONTRIBUTION MARGIN RATIO The contribution margin (CM) ratio is the ratio of contribution margin to total sales: [pic] If the company has only one product, the CM ratio can also be computed using per unit data: [pic] The CM ratio shows how the contribution margin will be affected by a given change in total sales. BREAKEVEN ANALYSIS - EQUATION METHOD Q = Break-even quantity Sales = Variable expenses + Fixed expenses + Profits Q x selling price/unit = (Q x variable expense/unit) + Fixed expenses + Profits BREAKEVEN ANALYSIS - CONTRIBUTION MARGIN METHOD Break-even quantity = Fixed Expenses CM/u To calculate the breakeven point in sales dollars, substitute ratios as a percent of sales for dollars. Or, calculate the breakeven point in units and multiply by the selling price/unit. MARGIN OF SAFETY The margin of safety is the excess of budgeted (or actual) sales over the break-even sales. The margin of safety can be expressed either in dollar or percentage form. The formulas are: [pic] [pic] OPERATING LEVERAGE Operating leverage measures how a given percentage change in sales affects net operating income. It is a measure of volatility in net income caused by high fixed expenses relative to variable expenses. [pic] Use the income statements for Company X and Y to compute: a. Breakeven point in units and sales dollars. b. Margin of safety. c. Degree of operating leverage. ...
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...Paper Title: Break Even Analysis Managerial Accounting Break Even Analysis LASA case M3A2: In this scenario in order to ensure that we identify all levels of sales where the profit is zero. Manager’s has to ensure that they perform a comprehensive Break Even Analysis between the number of units sold for three different products using the, variable cost, unit price and the fixed cost. This will be accomplished by using the data provided below for this LASA case study. (A). Contribution Margin: Determine Contribution Margin by identifying the profit made on the sales, minus the variable costs. [pic] (B). The Weighted Average Percentage Margin: The Weighted Average number represents the difference between revenue and variable cost, is the one used to apply to the break-even point calculation. [pic] (C). Avoidable Fixed Cost: Number of Units sold to find the Break Even Point. [pic] (D). Avoidable Cost –CM: This allows you to determine your operating profit after the fixed costs are applied. [pic] (E). Break Even Analysis Outcome: [pic] Based on the comprehensive analysis identified in the complete Break Even Analysis, the Piedmont Fasteners Corporation needs to implement a job order or process-costing system to accumulate cost. With the implementation, it will allow the company to process job order faster to meet the demand of the customer, due to the fact...
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...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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...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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...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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...company What does the term ‘break even’ mean? Break even: This means the point at which the total cost equals the total revenue. Advantages of Break-even point Break-even point clearly explains the relationship between cost, production volume and returns. It clearly shows the lowest amount of business activity. It assists the business in determining the minimum amount of activity to prevent losses and maximize gains. It shows how the change in variable cost, fixed cost relationship affects profit level. It is very useful when in link with partial budgeting or capital budgeting techniques. Break-even also measures profit and loss at different levels of production and sales, which will help determine the time necessary for recouping the amount of money that has been invested in a business. Disadvantages of Break-even point Break-even can only be applied to single products or single mix products Most Break-even charts may be time consuming to create. It Assumes production and sales at the same time and it also assumes that sales price are constant at all level of output. How many jeans would they now need to sell to break-even? In order for the Brockley’s company to sell break-even they would need to sell 1400 jeans. Monthly Sales Variable Expenses = Contribution Margin Monthly Sales Contribution= selling price - variable cost per unit 5 = 12 7 Break even = fixed cost/contribution ...
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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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...CHAPTER 6 Audit Planning, Understanding the Client, Assessing Risks, and Responding Review Questions 6–1 In their investigation of a prospective client, the CPAs should assess the backgrounds and reputations of the prospect and its major shareholders, directors, and officers. Thus, inquiries are made of underwriters, bankers, and attorneys that conduct business with the prospective client. Also, the CPAs are required to make inquiries of the prospect’s predecessor auditors to obtain information that might enter into the acceptance decision, such as information regarding the integrity of management. The prospect’s financial reports, SEC filings, credit reports, and tax returns are used as sources of financial background information. 6–2 The audit committee of a board of directors must be composed of at least three independent directors. Independent directors are those who are outside directors (not officers or employees) who have no relationships that might impair their independence. This would include relationships such as performing consulting services for company management. In addition, the members must be financially literate; at least one member must be a financial expert. 6–3 An engagement letter is sent to the client by the auditors to make clear the nature of the engagement, any limitations on the scope of the audit, work to be performed by the client’s staff, and the basis for computing the auditors’ fee. The engagement letter...
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...This will mean getting my clothes muddy, but this is insignificant, while the death of the child would be presumably a bad thing.”(p.231) In this thought experiment provided by Peter Singer he illustrates his two arguments by presenting a situation where we sacrifice something of little moral importance for something of greater moral importance. He uses his clothes to as an example of something that has no moral significance or value, and as an item that should not factor into his mind when deciding to save the child. While ruining his clothes maybe a bad thing, it is an even worse thing to allow the child to die. However, his thought doesn’t address the incompatibility of his version of giving with the real world. Of the many objections that can be presented the most clearly present are those surrounding the increase of transportation of charitable goods and the costs of it. For example, the moral risks associated with sending someone to a region in need of aid when doing so would put their lives at risk. How should society attempt to justify the risk of sending a ship through dangerous waters in areas with high levels of piracy? Another dilemma would be the obvious increase in C02 emissions produced by the increase of traffic throughout the world in order to get the goods and services to the areas in need....
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...You got ball, “BREAK A LEG” One glance at the assignment’s title and the first thing came to my mind, “What in the world is this?” Is it literally my lecturer wants me to organize a fist fighting sort of a competition where we challenge guys to fight with each other by kicking their guts out? My thoughts went wild and I start imagining Brad Pitt look alike guys flexing their well define sculpted body with sweat dripping from that crunchy abdominal muscles. The reality was far apart from my imagination. Yes, there will be guys involve. Yes, they will compete with each other and yes, they will even flex their muscles, but for a completely different reason. It’s a futsal competition! I was thrilled with this as it will be my first ever venture in organizing sports event. Moreover, the title of the event itself was so catchy that I was so eager to promote it. You got ball, “Break a Leg” merely means there is a ball in the court, “Good Luck”. That very moment, I knew this event is going to be a challenge as I may end up with too much on my plate to chew. With all the weekends occupied in doing study revisions and weekdays by attending classes, I have to squeeze through whatever little time left to materialise this event. I was being very optimistic while carrying the entire task and this really helped to pull me through the muddy grounds when it was hard to decorate my every single step. We started this assignment by conducting meetings. Meetings were held weekly with our...
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...An Ethical Dilemma: To Tell or Not To Tell The real problem in this case is an ethical dilemma as whether or not Jack’s action should be taken as stealing since what he did is not immediately harmful to the company. Jack created a conflict of interest with Aker & Aker, when he was denied a partner’s position. He has been working with Aker & Aker for 17 years since after his graduation. Having being denied to receive the partner’s position, Jack did something ethical by using the company’s software for his personal interest. Even worse, Jack knew what he was doing wasn’t right but he kept on doing it anyway because he is preparing to leave with Aker & Aker right after creating his own company. Being Assigned to Jack, Carla knows what Jack did is not right. After discovering Jack’s misdeeds, Carla is faced with another ethical dilemma. She is not sure whether or not to tell on his boss, Jack. Carla will have to be really be careful in deciding how to approach this ethical dilemma because she doesn’t have a concrete proof of her boss’s crime. Therefore she stands to risk her job and her reputation if she decides to inform Aker & Aker of Jack’s actions. Concerned about her boss, Carla confronted Jack about his action and he justified it by saying that he was counting on that promotion to help pay for his son’s costly education and his medical expenses. Jack also said that he is planning to put up his own company using the company’s software. Knowing of this information, if I...
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