BUSINESS FINANCE & ACCOUNTING WEEK 2 - Problems and Exercises

Q2-2:
Variable Costs – 1) Sales Commissions; 2) Operating Supplies; and 3) Hydro.
Fixed Costs – 1) Rent; 2) Equipment Leases; and 3) Insurance.

Q2-9:
Contribution margin is the excess of sales over variable costs, not fixed costs.

Q2-10:
Break-even analysis is a misnomer because because finding the break-even point is only the first step in a planning decision. After determining break-even point, it must be analysed how a decision will affect sales, costs and net income.

2-A1
1)
Number of times plant is cleaned | Total m2 cleaned | Labour cost | Cleaning supplies cost | Total cost | Total cost total cost per m2 | 4 | 160000 | $24,000.00 | $9,600.00 | $33,600.00 | $0.210 | 5 | 200000 | $24,000.00 | $12,000.00 | $36,000.00 | $0.180 | 6 | 240000 | $24,000.00 | $14,400.00 | $38,400.00 | $0.160 | 7 | 280000 | $24,000.00 | $16,800.00 | $40,800.00 | $0.146 | 8 | 320000 | $24,000.00 | $19,200.00 | $43,200.00 | $0.135 |

2) Bombardier Cleans Plant | Outsource Cleaning Plant | Square Metres Cleaned | Bombardier | Times Cleaned | Outside | 160,000 | $33,600 | 4 | $23,600 | 200,000 | $36,000 | 5 | $29,500 | 240,000 | $38,400 | 6 | $35,400 | 280,000 | $40,800 | 7 | $41,300 | 320,000 | $43,200 | 8 | $47,200 |

Total cost to contract out for the next quarter is $112,100. The total cost to stay internal is $117,600. It would be cost effective to outsource the cleaning.

E2-1

| Sales | Variable Expenses | Contribution Margin | Fixed Expenses | Net Income | 1 | $900,000 | $500,000 | $400,000 | $330,000 | $70,000 | 2 | 800,000 | 450,000 | 350,000 | 270,000 | 80,000 | 3 | 960,000 | 600,000 | 360,000 | 250,000 | 110,000 |
Sales – Variable Costs = Contribution Margin – Fixed