...Break even analysis is the technique which is used to calculate the break-even point and assist managers in making key decisions. The break-even point of production is that level of output at which total costs equal to total revenue. In the above case, Katie is planning to make security badges in his business. However, before taking a final decision it is really important for Katie to perform break even analysis. This can be done through an equation method where the break-even point in units and in dollars can be calculated from the given data. The formula for the break-even point is, Break-even point = Total fixed cost / sales per unit – variable cost per unit By taking the appropriate figures from the data the break-even point can be calculated in this way. Break-even point = Total fixed cost / sales per unit – variable cost per unit BEP = ((500*12) + 410 + (150*12) +1875) / (4.85 – 2.65 – 1.08) BEP = 10085 / 1.12 BEP = 9004 units The break-even point suggests that Katie must need to sell more than 2621 number of badges in order to earn a profit. If the lower amount of badges are sold as compared to the break – even level than the company would incur a loss. Similarly the break-even dollars shows the amount of revenue which needs to generate in order to earn neither a profit nor a loss. The break even in dollars can be calculated by the formula BEP in dollars = BEP point * selling price per badge By taking appropriate figures from the data, the break even in...
Words: 576 - Pages: 3
...are the assumptions implicit in Bill French’s determination of his company’s break-even point * Bill was using volume base costing, when he is doing calculation for O/H he didn't pay any attention to product base calculation. So he cannot know the effects of the product to cost. With his calculation it is not so easy to decide to go ahead to producing which products. * For the right break-even point calculation it is necessary to make a calculation product base break-even point. And Bill was thinking all the cost are remaining same, especially the variable costs. * At the same time Bill didn't realize there is a dividend which company has to pay every year and this year has additional dividend payment and union has some special request, it brings additional cost on variable cost. * Bill was thinking the sales and the production strategy for the product will remain same and he will be able to use empty capacity for C production. But the management will reduce the production of A product and will increase the production of C product. * There are also changes on sale price of C, this will also effect whole calculation 2. On the basis of French’s revised information, what does next year look like? a) What is Break-even point | | | | | Formulation | Break-even point units = Fixed Cost / Contribution margin per unit | Contribution margin per unit= Selling Price- Variable cost per unit. | Current Situation | Sales of full capacity | 2...
Words: 1819 - Pages: 8
...Chapter 1 Introduction to Quantitative Analysis Teaching Suggestions Teaching Suggestion 1.1: Importance of Qualitative Factors. Section 1.2 gives students an overview of quantitative analysis. In this section, a number of qualitative factors, including federal legislation and new technology, are discussed. Students can be asked to discuss other qualitative factors that could have an impact on quantitative analysis. Waiting lines and project planning can be used as examples. Teaching Suggestion 1.2: Discussing Other Quantitative Analysis Problems. Section 1.2 covers an application of the quantitative analysis approach. Students can be asked to describe other problems or areas that could benefit from quantitative analysis. Teaching Suggestion 1.3: Discussing Conflicting Viewpoints. Possible problems in the QA approach are presented in this chapter. A discussion of conflicting viewpoints within the organization can help students understand this problem. For example, how many people should staff a registration desk at a university? Students will want more staff to reduce waiting time, while university administrators will want less staff to save money. A discussion of these types of conflicting viewpoints will help students understand some of the problems of using quantitative analysis. Teaching Suggestion 1.4: Difficulty of Getting Input Data. A major problem in quantitative analysis is getting proper input data. Students can be asked to...
Words: 2324 - Pages: 10
...CHAPTER 3 COST-VOLUME-PROFIT ANALYSIS TRUE/FALSE 1. To perform cost-volume-profit analysis, a company must be able to separate costs into fixed and variable components. Answer: True Difficulty: 1 Objective: 1 Terms to Learn: cost-volume-profit (CVP) analysis 2. Cost-volume-profit analysis may be used for multi-product analysis when the proportion of different products remains constant. Answer: True Difficulty: 1 Objective: 1 Terms to Learn: cost-volume-profit (CVP) analysis, sales mix 3. It is assumed in CVP analysis that the unit selling price, unit variable costs, and unit fixed costs are known and constant. Answer: False Difficulty: 2 Objective: 1 Terms to Learn: cost-volume-profit (CVP) analysis It is assumed in CVP analysis that the unit selling price, unit variable costs, and total fixed costs are known and constant. 4. In CVP analysis, the number of output units is the only revenue driver. Answer: True Difficulty: 2 Objective: 1 Terms to Learn: cost-volume-profit (CVP) analysis, revenue driver 5. Many companies find even the simplest CVP analysis helps with strategic and long-range planning. Answer: True Difficulty: 1 Objective: 1 Terms to Learn: cost-volume-profit (CVP) analysis 6. In CVP analysis, total costs can be separated into a fixed component that does not vary with output and a component that is variable with output level. Answer: True Difficulty: 2 Objective:...
Words: 13946 - Pages: 56
...Week 3: Read Exercise 4-1 (Note: This is will not be done as a group assignment). Answer end of exercise question and post answer in discussion board. Operating Leverage: John Diaz owns Pacific Electric, a large electrical contracting firm that provides services to building construction projects. The company has 2,000 employees and operates in three western states. Recently the company experienced large losses due to a downturn in the economy and a slowdown in construction. John thinks the losses were particularly large because his company has too much fixed cost. Required: a. Expand on John’s thought. How are the large losses related to fixed costs? In management accounting, fixed costs are defined as expenses that do not change as a function of the activity of a business, within the relevant period. For example, a retailer must pay rent and utility bills irrespective of sales. In John’s case, I will assume that he will have a Cost-Volume-Profit Analysis performed. I would hope also that this analysis would be performed on each of his businesses in the three states that he operates within and at a corporate level. No company should go on gut feelings when it comes to saving their business and this could be the situation for John. Cost-Volume-profit (CVP), in managerial economics is a form of cost accounting. It is a simplified model, useful for elementary instruction and for short-run decisions. Cost-volume-profit (CVP) analysis expands the use of information provided...
Words: 772 - Pages: 4
...CASE : BILL FRENCH 1. What are the assumptions implicit in Bill French’s determination of his company’s break-even point? Assumptions Sales volume will be maintained. No planned changes in volume next year Only one, aggregate break-even point is utilized in the analysis. Sales mix will remain constant. Linearity will be exhibited by both total revenues and expenses over the relevant range. No capital investments that will increase fixed costs. Constant dividends are paid out to the company’s stockholders. Labor union will not significantly affect cost structure. No substantial changes in product prices. Given Information: Sales at Full Capacity (units) Actual Sales Volume Unit Sales Price Total Sales Revenue Variable Cost per Unit Total Variable Cost Fixed Costs Profit Ratios: Variable cost to sales Unit contribution to sales Utilization of capacity Breakeven Point (Original Sales) Aggregate A 2,000,000 1,500,000 600,000 $7.20 $10.00 10,800,000 6,000,000 4.50 7.50 6,750,000 4,500,000 2,970,000 960,000 1,080,000 540,000 0.625 0.375 75% 0.75 0.25 30% B 400,000 $9.00 3,600,000.000 3.75 1,500,000 1,560,000 540,000 0.42 0.58 20% C 500,000 $2.40 1,200,000 1.50 750,000 450,000 0 0.625 0.375 25% 2. On the basis of French’s revised information, what does next year look like: a. What is the break-even point? Breakeven Point (Reallocated Sales) Aggregate A 2,000,000.000 0.229 1,750,000.000 400,000.000 7.200 10.000 12,600,000.000 4,000,000.000 4.500 8.250 3,690,000.000 640,000.00 2.700...
Words: 1813 - Pages: 8
...Table of Contents What is the current situation? 2 What has made MMBC successful & distinguishes it? 2 What enabled MMBC to create such a strong brand? 3 What has caused MMBC’s decline in spite of its strong brand? 3 Should MMBC introduce a light beer? 4 Is MM Light financially feasible for MMBC? 5 Break-Even Point (BEP) Analysis 6 MM Lager Cannibalization 6 MM Light Marketing Strategies 7 Exhibit 1 – SWOT Analysis 9 Exhibit 2 – Financial Data and Assumptions 10 Exhibit 3 – Break-Even Point (BEP) Analysis Calculations 11 Exhibit 4 – MM Lager Cannibalization Calculations 12 Exhibit 5 – MM Light Marketing Strategy 15 What is the current situation? Mountain Man Brewing Company (MMBC) is a family business founded in West Virginia in 1925 by Guntar Prangel. The company is now operated by Guntar’s grandson, Oscar. Oscar’s son, Chris, is slated to inherit the business in five years when his father retires. Mountain Man (MM) Lager is the flagship product and the only beer currently produced by the company. The recipe for the lager was based on a refined family recipe and is known for its flavorful, bitter taste. By the 1960s, the lager had established itself as a legacy beer with a rich history, and the company continues to maintain its independent, family-owned status which appeals to its core drinkers. By 2005, the popularity of MM Lager in the East Central region of the U.S. had grown to generate revenues of just over $50 million, and the beer held the...
Words: 3340 - Pages: 14
...LEARNING ISSUES COST-VOLUME-PROFIT (CVP) ANALYSIS 1. Definition of cvp 2. Objectives of cvp 3. The importance of cvp to the management: 4. Describe the situation of increasing return to scale 5. Describe the situation of decreasing return to scale 6. Distinguish between economist’s and accountant’s approach to cvp analysis 7. Define the term of “profit volume ratio”. 8. Definition of cost behavior 9. Types and examples for each of the cost behaviour 10. Which should be less and more? 11. How are graphs for each types of cost behaviour? 12. Why in the short-term, some costs and revenues are not relevant for decision making? 13. What would be the effect on the profits if we reduce selling price and sell more units? 14. Should we pay workers on a basis salary only/commission only/combinations? 15. How would changes in sales volume affect the profits of the firms? 16. Definition of bep 17. Limitation of bep 18. Benefit of (bep) 19. Assumptions in (bep) 20. Computation of bep in units and in value 21. What is the effect on a firm’s (bep) of a lower income tax rate? 22. Can break even analysis to be used to determine the sales level that is needed in order to earn a target net profit? 23. Break even point graph 24. Definitions of sales mix 25. What’s the effect on the company’s profits? 26. What is the assumption in the basis? 27...
Words: 12519 - Pages: 51
...Table of Contents INTRODUCTION AND MAIN ISSUES 3 ANALYSIS 4 Qualitative 4 Quanitative 5 Breakeven Point (BEP) 5 Flexible Budget 6 Variances 7 RECOMMENDATION 8 Encourage, motivate, reward and recognize 8 Cellular Manufacturing System 8 Implement new accounting method 9 Extend the contract 9 ACTION PLAN 10 REFERENCES 12 INTRODUCTION AND MAIN ISSUES Danshui was a contract manufacturer that assembled electronic products for companies wishing to save labour costs by locating in southern China. Because of high demand for iPhone 4, Apple had contracted with Danshui to assemble iPhone in Plant No. 2. The contract need Danshui to assemble 2.4 million iPhone in the period between June 1, 2010 and May 31, 2011. Wentao Chen, manager of Danshui Plant No. 2 was worried because in the third month of the contract production was only 180,000 units per month. Suppose to produce 2.4 million iPhone its need 200,000 units per month. After preliminary budget has come out, the company loss of $672,000. The main issue of this case is the break contract between Danshui and Apple. The contract called Danshui to assemble 2.4 million in the period of one year, but Danshui only can produce 180,000 units per months. If Danshui still can produce that amount, it can’t reach 2.4 million in one year. This might happen because Danshui cannot find people to hire, even though they have raised wages by almost 30%. Another reason is they have problem with the...
Words: 2251 - Pages: 10
...CVP analysis: A tool for business decision making Introduction Cost-Volume-Profit Analysis (CVP), in managerial economics is a form of cost accounting. It is a simplified model, useful for elementary instruction and for short-run Cost-volume-profit (CVP) analysis expands the use of information provided by breakeven analysis. A critical part of CVP analysis is the point where total revenues equal total costs (both fixed and variable costs). At this breakeven point (BEP), a company will experience no income or loss. This BEP can be an initial examination that precedes more detailed CVP analyses.Cost-volume-profit analysis employs the same basic assumptions as in breakeven analysis. Cost-volume-profit analysis (CVP), or break-even analysis, is used to compute the volume level at which total revenues are equal to total costs. When total costs and total revenues are equal, the business organization is said to be “breaking even.” The analysis is based on a set of linear equations for a straight line and the separation of variable and fixed costs. Total variable costs are considered to be those costs that vary as the production volume changes. In a factory, production volume is considered to be the number of units produced, but in a governmental organization with no assembly process, the units produced might refer, for example, to the number of welfare cases processed. There are a number of costs that vary or change, but if the variation is not due to volume changes, it is not considered...
Words: 3133 - Pages: 13
...challenged and questioned because his presentation failed to consider some aspects of the company’s operation such plans for expansion in sales and production, the product mix and prices on individual product basis since he was only using “averaging”. This is because of his following assumption: • He has assumed that there is just one breakeven point for the firm (by taking the average of the 3 products). • He has also assumed that the sales mix will remain constant. Total revenue and total expenses behave in a linear manner over the relevant range. • Since the capacity is being expanded to increase production of Product C, it could be assumed that this increase should be allocated to this product. Production of Product A is to be scaled down, but its level of fixed costs has been assumed to be unchanged He also failed to consider the interest of other stakeholders such as taxes, dividends, expected union demands and the question on product emphasis. French is requested to prepare a thorough break-even analysis taking into account all the series of assumptions tackled in the meeting. II. STATEMENT OF THE PROBLEM What will be the assumptions and ways for Bill French’s to determine their company’s break-even point? III. POINT OF VIEW Wes Davidson, controller of Duo-Products Corporation IV. AREAS OF CONSIDERATION 1. The additional $60,000 fixed cost per month 2. Unit sales are expected to increase by 20 percent. 3. Different cost and...
Words: 1479 - Pages: 6
...CHAPTER 3 ANALYSIS OF FINANCIAL STATEMENTS (Difficulty: E = Easy, M = Medium, and T = Tough) Multiple Choice: Conceptual Easy: Current ratio Answer: a Diff: E [i]. All else being equal, which of the following will increase a company’s current ratio? a. An increase in accounts receivable. b. An increase in accounts payable. c. An increase in net fixed assets. d. Statements a and b are correct. e. All of the statements above are correct. Current ratio Answer: d Diff: E [ii]. Pepsi Corporation’s current ratio is 0.5, while Coke Company’s current ratio is 1.5. Both firms want to “window dress” their coming end-of-year financial statements. As part of its window dressing strategy, each firm will double its current liabilities by adding short-term debt and placing the funds obtained in the cash account. Which of the statements below best describes the actual results of these transactions? a. The transactions will have no effect on the current ratios. b. The current ratios of both firms will be increased. c. The current ratios of both firms will be decreased. d. Only Pepsi Corporation’s current ratio will be increased. e. Only Coke Company’s current ratio will be increased. Cash flows Answer: a Diff: E [iii]. Which of the following alternatives could potentially result in a net increase in a company’s cash flow for the current year? a. Reduce the days sales outstanding...
Words: 18548 - Pages: 75
...AG; Financial Performance Analysis This paper is prepared by: Asif Ahmed BBA 13th Batch Department of Accounting & Information Systems Faculty of Business Studies University of Dhaka, Bangladesh E-mail; asif.ahmed0001@yahoo.com Cell Phone; +8801922939126 BMW AG; Financial Performance Analysis (Asif Ahmed) 1 of 24 Executive Summary: The world is just recovering from a big recessio n. Various big corporations became bankrupt because of this. Many of the automaker giant posted loss during the last 2 or three years, like – Toyota and the biggest corporation of the world General Electric (GE) became bankrupt. More or less all the big corporations are affected by it. BMW, one of the automaker giant, could retain its’ profitability over last three years when the global recession take place. It also affected by the recession but cannot lose the profitability. This interesting thing inspires me to conduct research on the financial performance of BMW AG. In the beginning of my paper I give an overview on the BMW. Later I analyze the net profit, sales revenue, costs and assets base of the corporation for the last 10 years. Then I go for ratio analysis to judge the financial health of the organization. In ratio analysis I use Return of Assets (ROA), Return on Equity (ROE), Basic Earning Power (BEP), Liquidity ratio, Profitability Ratio, Divided Payout (DP) Ratio and Du Pont Chart to conduct my analysis. The findings on the analysis are discussed along with...
Words: 4944 - Pages: 20
... Copy Right All rights of this report are reserved. No part of it may be reproduced or transmitted in any form without the prior notice and permission by the authors. No patent liability is assumed with respect to the use of the information contained therein. Authors: Disclaimer The objective of this report was to gain insight in the field of making business plan and analyzing the financial situation and feasibility of syringe manufacturing in Nepal. The authors are confident that the results of the analysis and the results presented in this report will be taken as guidance for a more comprehensive study at the future date. The authors are not responsible or liable legally and morally against the results and consequent decisions based on the responses received from the analysis. The views expressed in this report are those of the group members only. Acknowledgement We would like to express our sincere gratitude to our Entrepreneurship and New Business Formation instructor Mr. for providing the knowledge of preparing a comprehensive and an impressive business plan. The Resource Centre has also been helpful in the providing the costs and requirements of our analysis firm. So, we thank the librarian for providing us with the necessary resources for this B-Plan. We would like to thank our friends for helping us out in the...
Words: 4963 - Pages: 20
...payable Increase in accruals Increase in accounts receivable Increase in inventories Net cash provided by operating activities Long-Term Investing Activities Additions to property, plant, and equipment Net cash used in investing activities Financing Activities Increase in notes payable Increase in long-term debt Payment of cash dividends Net cash provided by financing activities Summary Net decrease in cash Cash at beginning of year Cash at end of year ($711,950) ($711,950) $436,808 400,000 (11,000) $825,808 ($ 50,318) 57,600 $ 7,282 Chapter 3 Financial Statements, Cash Flow, and Taxes 83 Access the Thomson ONE problems through the CengageNOW™ web site. Use the Thomson ONE—Business School Edition online database to answer this chapter’s questions. Exploring Starbucks’ Financial Statements Over the past decade, Starbucks coffee shops have become an increasingly familiar part of the urban landscape. Currently (2008), the company operates more than 8,000 coffee shops in all 50 states, in the District of Columbia, and in international markets; and in 2008, it had approximately 145,000 employees. Thomson ONE can access a wealth of financial information for companies such as Starbucks. To find some background information, begin by...
Words: 20517 - Pages: 83
