Ch 9 Test – Discounted Cash Flow Analysis • Capital budgeting uses cash flows not accounting profits. • To calculate the value of a capital budgeting project, use incremental cash flows, not total cash flows. • Know what items are considered in cash flow analysis for capital budgeting: ▪ incremental cash flows, ▪ indirect effects, ▪ opportunity costs, ▪ changes in net working capital, ▪ shutdown cash flows,) ▪ beaware of overhead costs. Forget sunk costs. • Know when sunk costs
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success was due to paying commissions. The sisters are considering the following financial information to help with decision making and bringing the company back to good financial health: * The break-even point in units has increased from 4,535 units to 7,505 units between 2003 and 2006. The break-even point in sales increased from $7,287,745 to
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Contribution margin ratio = Contribution margin / Sales Break even point (units) = Fixed expenses / Unit contribution margin Break even point (dollar sales) = Fixed expenses / CM ratio Units sales to attain target profit = (Fixed expenses + Target profit) / Unit contribution margin Dollar sales to attain target profit = (Fixed expenses + Target profit) / Contribution margin ratio Margin of safety = Total budgeted or actual sales - Break even sales Margin of safety percentage or margin of safety
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Question 1: What is the company’s overall break-even in total sales dollars? Frog: Variable cost = 100,000 * $1.20 = $120,000 Sales = 100,000 * $2.00 = $200,000 Minnow: Variable cost = 200,000 * $0.80 = $160,000 Sales = 200,000 * $1.40 = $280,000 Worm: Variable cost = 300,000 * $0.50 = $150,000 Sales = 300,000 * $0.80 = 240,000 The total sales = $200,000 + $280,000 + $240,000 = $720,000 The total variable cost = $120,000 + $160,000 + $150,000 = $430,000 Contribution Margin = the
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activities such as parking lots, game programs and food services to be handled as profit centers. Dr. Starr instructed the Stadium Manager, Hank Maddux during their recent meeting to develop a break-even chart and related data for each of the centers. Among the ancillary services, Dr. Starr wanted to have first the break even report for the Food Service area ready on their next meeting. Table 1 containing the estimated selling per unit and variable cost per unit as well as expected percent of revenue for each
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sells for $15.00 per unit. Variable costs are $4.50 per unit, and fixed costs total $135,000 per year. Required: Answer the following independent questions: 1. What is the product’s CM ratio? 2. Use the CM ratio to determine the break-even point in sales dollars. 3. Due to an increase in demand, the company estimates that sales will increase by $56,250 during the next year. By how much should net operating income (or net operating loss) change, assuming that fixed costs do not
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were selling. This created a higher break-even point which was not met either year. In 2012, since there wasn’t as much produced, there was a lower break-even point and Renton sold 808 units over the break-even point. This level of sales helped to create a contribution margin of 73%, a 21% increase from 2012. Not only was 2012 the most profitable year Renton has seen since they have been in business, it was the first year the company exceeded its break-even point in unit and dollar sales. Zac
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materials and the cost of some new equipment, the company estimates axed costs to be $40,000 with a variable cost of $45 per unit produced. a) If the selling price of each new product is set at $100, how many units need to be produced and sold to break even? Use both the graphical and algebraic approach? b) If the selling price of the product is set at $80 per unit, See-Clear expects to sell 2000 units. What would be the total contribution to profit from this product at this price? c) See-Clear
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food service area of the Southwestern University (SWU) if an expansion occurs was calculated. This report gives a detail of the break-even chart and related data for the food service area for Southwestern University (SWU) in order to determine if the food service can be controlled as a profit center. The analysis of the data obtained showed that the break-even was very low. It was also noted that coffee, hot dogs and hamburgers generate higher revenue. 5th May 2016 ITTOO NITASHA
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is the break-even point in passengers and revenues per month? Break-even point (sales) = Fixed Cost/ Contribution margin = 3,150,000/ 160-70 = 3,150,000/ 90 = 35,000 per unit Break-even point (revenue) = 35,000 * 160 = $5,600,000 B. What is the break-even point in
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