...CHAPTER 10 Differential Cost Analysis This chapter deals with the use of differential cost analysis in financial management decision making situations. The basic premise of differential cost analysis is that different costs are treated differently in different financial management decision situations. Hence the name differential costs. Two major applications of differential cost analysis are presented. The first application is called break-even analysis. In break-even analysis, differential cost analysis is used to answer the question, How much service must a human service program provide during a fiscal year in order to recover its total costs? The second application can be called decrease/discontinue decisions. In these types of financial management decisions, differential cost analysis answers the question, What will be the effect on fixed and variable costs of a decision to reduce or discontinue a human service program? Some Concepts and Definitions Before proceeding to the discussion of the applications of differential cost analysis, some basic concepts and definitions need to be introduced including fixed costs, variable costs, step costs, maximum efficiency, and surplus capacity. Fixed Costs and Variable Costs In Chapter 8 the concepts of direct and indirect costs were introduced as part of the discussion of cost analysis. As was noted in Chapter 8, the full cost, or total cost, of a human service program is the sum of its direct costs and indirect costs...
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...Healthcare Facility Equipment Acquisition Cost Analysis Project Professor Class 19 August 2012 Abstract Acquisition Background An equipment acquisition proposal had been received by a health care organization for a medical array machine. The array machine will allow the hospital to perform in-house autoimmunity tests rather than sending them off site to a reference laboratory. The off-site laboratory currently has a two day turn around time and charges the hospital $10 per test. The purpose of this analysis is to prove to the board that this acquisition proposal of the array machine is in deed beneficial to the hospital and will increase revenue and profits. Break Even Analysis Based on the current operation, the hospital sends lab work to an off-site laboratory to perform autoimmunity tests for immunoglobulins G, M, and A and complements C3 and C4. On average the hospital performs test of one of each of the five autoimmunity tests per day, for a total of five tests. The hospital pays the off-site laboratory $10 per test and charges patients $20 per test. The proposal notes that the hospital could keep these tests on-site and profit by the purchase of the array machine. The hospital would have to pay approximately $2 per test for reagents. The hospital performs 1,560 tests per year. First, it is important to understand the Break Even Analysis on this purchase. The following shows the Break Even Analysis figures based on the equipment’s five-year life span and how...
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...Statement……………………………………………………... 1 • Goals…………………………………………………………………… 2 4. Competitive Advantage ……………………………………………………… 2 5. Situational Analysis ………………………………………………………….. 3 • SWOT Analysis…………………………………………………………. 3 • Environmental Forces…………………………………………………… 3 • Consumer Analysis……………………………………………………… 4 6. Market product Grid ………………………………………………………… 5 • Service Offering………………………………………………………... 6 • Service Strategy………………………………………………………… 6 7. Break-Even Point …………………………………………………………….. 6 8. Marketing Program ………………………………………………………….. 10 • Promotion Strategy…………………………………………………….. 10 • Promotion Schedule……………………………………………………. 11 • Promotion Strategy (cont.)……………………………………………… 12 9. Implementation Phase …………………………………………………………. 13 10. Executive Summary ……………………………………………………………. 14 11. Bibliography …………………………………………………………………….. 16 Company Description Kids “R” Us Babysitting Service is a new and local child care service located in Harlingen, TX. After performing a brief survey to the local families in Harlingen, their main concern was trustworthy and reliable child care in the evening hours at their home. Reva Leanna Rodriguez, founder of Kids “R” Us Babysitting Service, knew this was exactly what the families of Harlingen needed. Kids “R” Us offers local babysitting services for children 0-12 years of age, twenty-four hours a day, seven days a week in the comfort of your own home. Our employees are trustworthy, reliable, have numerous references, years of experience, and most...
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...Transcript of Project Management-A&D Conclusion Resource Analysis Thank You for Your Attention Recommendations Cost Analysis CIO Matt Webb had to decide on whether to buy an off the shelf software, or customize and build one. After conducting a cost benefit analysis, and much deliberation, Webb decided that building one would be more efficient. To start off, a cross functional team of 6 people was created to plan the project based on the “build” decision. After defining the teams planning components and requirements, the following resources and tools were required to complete the project. A&D’s Methodology The stores sales reach a peak during the holiday season and the CEO wanted to know if the project could be done in time to jump on the holiday sales. Objective A&D High tech was losing sales potential by not selling online. They wanted to finish implementing the online project before the holiday season and the project, manager Eric that there wasn’t enough time to getting up to speed on the project since they were already late. The loss of potential sales via the internet has led to decreasing margins and a tougher competitive environment due to A&D’s loss of a competitive advantage via Web Services. Missed opportunity of increasing revenues by decreasing costs per internet order. Addressed Issue A&D Tech specialize in selling computer related products and services. They had broken ground with their innovative made to order products and have been growing steadily...
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...ROSS DOGGY CARE MARKETING PLAN Student: Jackelinne Bartel Professor: Andrew Moore Class: Marketing Management MARKETING PLAN OUTLINE 1. Executive Analysis 2. Situation Analysis 2.1 Market Summary 2.2 SWOT Analysis 2.3 Competition 2.4 Product (Service) Offering 2.5 Keys to Success 2.6 Critical Issues 3. Marketing Strategy 3.1 Mission 3.2 Marketing Objectives 3.3 Financial Objectives 3.4 Target Marketing 3.5 Positioning 3.6 Strategy Pyramids 3.7 Marketing Mix 3.8 Marketing Research 4. Financials, Budgets, and Forecasts 4.1 Break-even Analysis 4.2 Sales Forecast 4.3 Expense Forecast/Promotional Budget CONCLUSION REFERENCES Executive Summary Ross Doggy Care is a dog foster-family arrangement in Rossy Sloth's home. Customers are able to leave their dog at the Sloth's home when they go on vacation. The dog is surrounded by people all day, have their own bed, are taken for walks twice a day, and have a one acre fenced backyard to explore. Ross Doggy Care is a superior alternative to a kennel because the dogs get attention all day, have plush facilities, and have ample opportunities to exercise. The guest dogs will typically even sleep in the children's rooms (in the bed under the sheets if they choose). Basically, the dogs become a temporary member of the household. Ross Doggy Care is able to offer this specialized attention because they are equipped to handle only eight dogs at once. Ross Doggy Care will compete directly...
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...banker or trade creditor is most concerned about a firm's profitability ratios. FALSE 5. Ratios are only useful for those areas of business that involve investment decisions. FALSE 6. Debt utilization ratios are used to evaluate the firm's debt position with regard to its asset base and earning power. TRUE 7. The DuPont system of analysis emphasizes that profit generated by assets can be derived by various combinations of profit margins and asset turnover. TRUE 8. During disinflation, stock prices tend to go up because the investor's required rate of return goes down. TRUE 9. Analysts agree that extraordinary gains/losses should be excluded from ratio analysis because they are one time events, and do not measure annual operating performance. TRUE 10. Intangible assets are becoming an important part of the assets in a company's financial statements because accountants are recognizing the growing impact of brand names. FALSE 11. Absolute values taken from financial statements are more useful than relative values. FALSE 12. Ratio analysis can be useful for A. historical trend analysis within a firm. B. comparison of ratios within a single industry. C. measuring the effects of financing. D. All of these are true. 13. In examining the liquidity ratios, the primary emphasis is the firm's A. ability to effectively employ its resources. B. overall debt position. C. ability to pay short-term obligations on time. D. ability...
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...Task 6 P6 An organisations break-even point is the point when income is equal to expenditures resulting in neither profit or loss. The break-even point is significant to organisations as public and not-for-profit sectors usually aim to achieve this point, whereas private organisations wish to earn above this point. Coca Cola Café break-even table The Coca Cola Café’s break-even table displays the business minimum and maximum output in a 30 day period along with the financial data associated with each unit of output. The data acquired from this table can be used to plot points on the break-even graph. |Unit of output |Fixed costs |Variable costs |Total costs |Total revenue |Profit / loss | |0 |£39,130 |£0 |£39,130 |£0 |- £39,130 | |500 |£39,130 |£3580 |£42,710 |£7750 |- £34,960 | |1000 |£39,130 |£7160 |£46,290 |£15,500 |- £30,790 | |1500 |£39,130 |£10,740 |£49,870 |£23,250 |- £26,620 | |2000 |£39,130 |£14,320 |£53,450 |£31,000 |- £22,450 | |2500 |£39,130 |£17,900 |£57,030 |£38,750 ...
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...operate this division of our business. The Urgent Care is currently seeing an average of 1230 visits per month creating $47,000 in net revenue. A breakeven analysis shows that the center should see 1460 visits per month at its current staff and cost (see appendix). In order for the center to break even, they would need to see an additional 230 patients per month or 8 patient per day. I have approached our marketing department to identify what financial impact would have if we launched a program to drive business directly to the Urgent Care. Here are some of the numbers before we consider this approach: * $7000/month= for marketing program * $7000/30days=$233.33/day needed to run the program * $38.25= the approximate amount each patient is charged * $5.00=variable cost per patient * The urgent care would need to see an additional 7 patients/day simply to pay for the marketing program. Although 7 patients per day does not sound like much, a majority of the loss would be from the additional staffing. The addition of 1 patient could cost $663. ($465 additional staffing+$233 marketing 1 day-$35 revenue from the patient.) According to my calculations, in order for the marketing plan to be successful, the clinic would need to see an additional 30 patients per day. It would give the clinic a $275 profit per day after all cost incurred and allow us to escape the steep physicians semi-fixed cost. This approach is the most feasible as long as this plan fits into...
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...PROJECT TITLE Reducing the lead time of litho printing sample making process at Avery Dennison Lanka INTRODUCTION Avery Dennison Lanka (Pvt) Ltd is a company, which is situated in Biyagama free trade zone. Avery Dennison is a multinational company which is spread among 60 countries over the world. The company ranked number 362 on the 2010 fortune 500 list of the largest U.S. industrial and service companies. The CEO is Dean A. Scarborough. There are around 600 employees working in the company. Avery Dennison develops, manufactures and sells products through four groups of businesses as Pressure‐sensitive Materials, Retail Information Services, Office and Consumer Products and other specialty converting businesses. This Company's products include pressure‐sensitive labelling materials, graphics imaging media, retail apparel ticketing and branding systems, RFID inlays and tags, office products, specialty tapes, and a variety of specialized labels for automotive, industrial and durable goods applications. In Sri Lanka, products are narrowed down to labels and tags which give information about a specific garment good. Garment manufacturers can be considered as the main customers of Avery Dennison Lanka (Pvt) Ltd. Thus such tags are to be manufactured in large quantities. In order to get a satisfactory product that meets the customer need, first the samples has to be fabricated. The sample making p...
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...Snap Fitness Cost-Volume-Profit and Break-Even Analysis Anne, Bratcher Kim Collins, Heather Davis ACC/561 August 13, 2012 Dr. Sandra Welch Snap Fitness Even though owning a business can be costly, finding one that aligns with an individual’s ability to invest and operate is challenging. Health and fitness continues to be one of the biggest markets today. Snap Fitness is a growing franchise chain of fitness clubs that is a reasonably priced investment with relatively fast turn around on investment. Franchise History Peter Taunton founded this chain of fitness clubs in 2003 in Chanhassen, Minnesota. This fitness operation presents individuals looking for a way to own their own business in the fitness industry by offering affordable franchising opportunities. These franchise opportunities are client-friendly and can be found across the globe. Snap Fitness clubs are open 24 hours daily and seven days a week. Memberships in one of these fitness clubs give clients opportunities to fit a work out in at their convenience. Many fitness organizations require members to enter into annual contracts that can offer savings if purchasing two or more year plan. Another good feature of the fitness club allows the client to work out at any Snap Fitness facility in the United States...
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...A newly-appointed director of a small German beer brewer must prepare to vote on three issues coming before the board of directors the next day: (1) approval of the financial plan for 2001, (2) declaration of the quarterly dividend, and (3) adoption of an incentive compensation plan for the marketing manager. The student’s task is to evaluate the past and prospective financial performance of the company and to critique its liberal credit and inventory policies. The objectives of the case are to: • Introduce and exercise tools and concepts of financial-statement analysis (including financial ratios, break-even analysis, and cash-flow statements). • Explore possible definitions of the “financial health” of a company. • Illustrate the linkage between operating policies and financial performance. • Consider the interdependence among corporate objectives regarding growth, dividends, and debt financing. • Explore the linkage between compensation incentives and financial performance. In this case, the marketing manager is motivated to build sales volume, which he accomplishes with a dramatic build-up in receivables and inventory. • Illustrate some of the challenges of doing business in an emerging market. Suggested Questions for Advance Assignment to Students 1. What accounts for Deutsche Brauerei’s rapid growth in recent years? Specifically, what policy choices account for this success? 2. What is Deutsche Brauerei’s credit policy toward its distributors in Ukraine?...
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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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...Teaching Note Synopsis and Objectives Suggested complementary cases regarding working-capital management and financial forecasting: “Kota Fibres,” (Case 10); “ServerVault,” (UVA-F-1304); and “Body Shop International 2001,” (Case 8). Cases regarding setting financial policy: “Gainesboro Machine Tools Corp.,” (Case 26); “Rosario Acero S.A.,” (UVA-F-1211). A newly-appointed director of a small German beer brewer must prepare to vote on three issues coming before the board of directors the next day: (1) approval of the financial plan for 2001, (2) declaration of the quarterly dividend, and (3) adoption of an incentive compensation plan for the marketing manager. The student’s task is to evaluate the past and prospective financial performance of the company and to critique its liberal credit and inventory policies. The objectives of the case are to: • Introduce and exercise tools and concepts of financial-statement analysis (including financial ratios, break-even analysis, and cash-flow statements). • Explore possible definitions of the “financial health” of a company. • Illustrate the linkage between operating policies and financial performance. • Consider the interdependence among corporate objectives regarding growth, dividends, and debt financing. • Explore the linkage between compensation incentives and financial performance. In this case, the marketing manager is motivated to build sales volume, which he accomplishes with a dramatic...
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...A Case Method Approach to Teaching Cost-Volume-Profit Analysis Susan Machuga University of Hartford This paper presents a Multi-Disciplinary Case-Method approach to teaching Cost-Volume-Profit (CVP) Analysis allowing students to use their own assumptions to simulate a real-life business startup analysis. The proposed business venture is one of starting a milkshake shack in the island of Hawaii. Students will learn to distinguish between fixed and variable costs, apply some of their own assumptions, and determine whether it would be profitable to open up a new business. INTRODUCTION I present an alternative, more comprehensive teaching approach, for Cost-Volume-Profit (CVP) analysis from the commonly used approach which simply teaches students how to use a series of equations to solve various questions related to CVP analysis, in which unit selling price, total fixed costs, and unit variable costs are assumed to remain constant (Garrison et al. 2010; Choo and Tan, 2010). I use a multi-disciplinary approach in the context of a realistic case-analysis. I believe this approach offers useful insights and provides a useful learning tool for students pursuing an advanced Master’s Degree. The case at hand requires students to: (a) make assumptions about costs in a dynamic and interactive way, and (b) research a variety of marketing issues for the proposed business that simulates a real life business situation. This paper’s approach also helps students see the interrelationships...
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...CHAPTER 7 Cost-Volume-Profit Analysis ANSWERS TO REVIEW QUESTIONS 7-1 a. In the contribution-margin approach, the break-even point in units is calculated using the following formula: [pic] b. In the equation approach, the following profit equation is used: |[pic] |fixed expenses |[pic] | This equation is solved for the sales volume in units. c. In the graphical approach, sales revenue and total expenses are graphed. The break-even point occurs at the intersection of the total revenue and total expense lines. 7-2 The term unit contribution margin refers to the contribution that each unit of sales makes toward covering fixed expenses and earning a profit. The unit contribution margin is defined as the sales price minus the unit variable expense. 7-3 In addition to the break-even point, a CVP graph shows the impact on total expenses, total revenue, and profit when sales volume changes. The graph shows the sales volume required to earn a particular target net profit. The firm's profit and loss areas are also indicated on a CVP graph. 7-4 The safety margin is the amount by which budgeted sales revenue exceeds break-even sales revenue. 7-5 An increase in the fixed expenses of any enterprise will increase its break-even point. In a travel agency, more clients must be served before the fixed expenses are covered...
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