...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. d. The change in net income caused by a 10% increase in sales. | |Company X ...
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...Medical community technological initiatives Proposal Outline 1. Subject of Course Project: To analyze current medical technology infrastructures and insurance accurate processing demands while recommending improvements for doctor and patient level reports, bills, claims, records and data exchange and enhancements through the use of technology and business re-engineering initiatives. 2. Business Problem Statement: As compared with other sectors of society who have successfully integrated IT into their business practices, the field of medicine has not been as aggressive in its approach to IT integration. Due to the rising cost of healthcare and increasing demands by patients and insurers for better quality care, healthcare organizations are being driven to implement IT to improve results. Healthcare is a very “information-intensive, confidential and sensitive industry,” that remains highly fragmented and inefficient. The use of technology in delivering clinical care, processing insurance claims and performing administrative functions has the potential to yield both cost savings and improvements in the care itself. The automation of electronic medical records and claims processing can be shown to save time and money as well as improve the effectiveness of making pertinent patient information and medical charges readily accessible to healthcare providers and patients. Sensitivity to patient privacy rights...
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... | $(4,921,000) | NI | | $299,000 | | | $130,000 | | | $(371,000) | Break-even point in units and dollars | | 2008 | 2009 | 2011 | Break-even point (Unit) | 3,230,000/347=9,308 | 3,333,000/347=9,605 | 4,921,000/349=14,100 | Break-even point (Dollar) | 9,308*815=$7,586,020 | 9,605*814=$7,818,470 | 14,100*816=$11,505,600 | Break-even point (Unit)= Fixed cost/Contribution Margin per unit Break-even point (Dollar)= Break-even point (Unit) x Sales per unit Margin of safety (%)= (Budgeted sales – Break-even sales)/Budgeted sales Margin of safety (%) | | 2008 | 2009 | 2011 | Margin of safety (%) | (8,279,000-7,586,020)/8,279,000= 8.4% | (8,117,000-7,818,470)/ 8,117,000= 3.7% | (10,656,000-11,505,600)/10,656,000= -8.0% | Index 2. New Income statement (Contribution Margin) | | 2008 | | | 2009 | | | 2011 | | 13,800 | Per Unit | Budgeted Amount | 13,800 | Per Unit | Budgeted Amount | 13,800 | Per Unit | Budgeted Amount | Sales | $774 | 10,681,200 | | $773 | 10,667,400 | | $775 | 10,695,000 | VC | $468 | (6,458,400) | | $467 | (6,444,600) | | $467 | (6,444,600) | CM | $306 | 4,222,800 | | $301 | 4,222,800 | | $308 | 4,250,400 | FC | | $(3,230,000) | | | $(3,333,000) | | | $(4,921,000) | NI | | $992,800 | | | $889,800 | | | $(670,600) | New Break-even point in units and dollars | | 2008 | 2009 | 2011 | Break-even point (Unit) |...
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...Prepared by Md. Mojaddid Ebna Amin ID : 101-11-1426 Section : C Program : BBA Daffodil International University Exercise 6-12: Miller Company’s most recent contribution format income statement is shown below: Total Per Unit Sales (20000 units) $300,000 $15.00 Variable expenses 180,000 9.00 Contribution margin 120,000 $6.00 Fixed expenses 70,000 Net operating income $ 50,000 Required: Prepare a new contribution format income statement under each of the following conditions: 1. The sales volume increases by 15%. 2. The selling price decreases by $1.50 per unit, and the sales volume increases by 25%. 3. The selling price increases by $1.50 per unit, fixed expenses increases by $20,000 and the sales volume decreases by 5%. 4. The selling price increases by 12%, variable expenses increases by 60 cents per unit, and the sales volume decreases by 10%. Solution: 1. ...
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...Question 1 Annual fixed cost: $950 million Variable cost per plane: $45 million Q1 Break-even point in unit= $950 million $25 million Break-even point in unit= 38 units Break-even point in sale dollars= $950 million $25 million $70 million Break-even point in sale dollars= $950 million 0.357 Break-even point in sale dollars= $ 2660 Million Q2 ------------------------------------------------- Revenue for 42 airline= $70 million * 42 airlines ------------------------------------------------- Total = $2940 million Sale revenue – Variable expense – Fixed expense = Profit $2940 million- $45 million - $950 million= $100 million PROFIT = $100 million Q3 ------------------------------------------------- Fixed cost ------------------------------------------------- New fixed cost = $950 million + $84 million ------------------------------------------------- Total New fixed cost= 1034 million ------------------------------------------------- Variable cost ------------------------------------------------- New Variable cost = 45 million – $2 million ------------------------------------------------- Total new variable cost= $43 million a) ------------------------------------------------- Sale= $2940 million ------------------------------------------------- Variable expense= $1806 million ------------------------------------------------- ...
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...Hallstead Jewelers How has the breakeven point in number of sales tickets (number of customer orders written) and breakeven in sales dollars changed from 2003 to 2004, and to 2006? How has the margin of safety changed? What caused the changes? The break-even point in the number of sales tickets for 2003, 2004, and 2006 are 4,535, 5,000, and 7,505 respectively. The break-even point in sales dollars for 2003, 2004, and 2006 are $7,287,043, $7,620,696, and $11,655,277 within these years. The margin of safety is the difference between the expected level of sales and break-even sales. Since there is no expectation of sales mentioned in the case report, a constant level of expected sales is assumed. If the expected level of sales remains constant, the break-even sales point will increase as the margin of safety decreases. Within these years, the margin of safety changed from 15%, 6%, to -9%. As shown in Table 1, fixed costs increased along with the break-even sales point and sales did not meet expectations, therefore the company reported a loss in 2006. This was caused by an increase in salaries (larger storage room), administrative expenses, miscellaneous expenses, depreciation (increase in assets from the larger store), and rent expenses (new store); which all caused an increase in fixed costs and break-even sales. Table 1: Break-even Sales Calculations (thousands of dollars) 2003 2004 2006 Sales $8,583 $8,102 $10,711 Less variable costs: Cost of goods...
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...Break Even Analysis Workplace, International is re-evaluating the design, cost and profitability of its line of office accessories. Currently, the items are constructed of metal-based parts for durable and consistent performance. At the time of the initial process decision, the metal drawing process was also the most economical. Management now suspects that the cost advantage enjoyed by metal parts is highly dependent on the volume of parts produced. To confirm their suspicions, management would like you to compare the break-even volume for one of its products, the 3-hole punch, when fabricated from metal versus plastic. What decision can be made based on the individual break-even points of each process? Metal Drawing Process Plastic Injection Molding Fixed cost $ 50,000 $100,000 Variable cost $ 5 per unit $ 2 per unit Selling price $10 per unit $10 per unit Process Selection Referring to the previous example, Workplace management wants more specific information regarding the volume at which the 3-hole punch should be constructed from metal parts or from plastic parts. Management is also considering subcontracting out the production of the parts for $8 per unit. Which alternative would you recommend? Question 1: What decision can be made based on the individual break-even points of each process? Solution Step 1 : Compute break-even for each process. Break-even for metal drawing process is. V = Cf P - Cv = 50,000 ...
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...CHAPTER 26 Marginal Costing and Cost Volume Profit Analysis Meaning Marginal Cost: The tenn Marginal Cost refers to the amount at any given volume of output by which the aggregate costs are charged if the volume of output is changed by one unit. Accordingly, it means that the added or additional cost of an extra unit of output. Marginal cost may also be defined as the "cost of producing one additional unit of product." Thus, the concept marginal cost indicates wherever there is a change in the volume of output, certainly there will be some change in the total cost. It is concerned with the changes in variable costs. Fixed cost is treated as a period cost and is transferred to Profit and Loss Account. Marginal Costing: Marginal Costing may be defined as "the ascertainment by differentiating between fixed cost and variable cost, of marginal cost and of the effect on profit of changes in volume or type of output." With marginal costing procedure costs are separated into fixed and variable cost. According to J. Batty, Marginal costing is "a technique of cost accounting pays special attention to the behaviour of costs with changes in the volume of output." This definition lays emphasis on the ascertainment of marginal costs and also the effect of changes in volume or type of output on the company's profit. FEATURES OF MARGINAL COSTING (1) All elements of costs are classified into fixed and variable costs. Marginal costing is a technique of cost control and decision making...
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...MHC601 Accounting & Finance for Managers Portfolio 1 Submitted to: Dr. Zelko Livaic Blue Mountains International Hotel Management School, Sydney, NSW Submitted By: Rajkumar Shrestha Student Number: 201414094 Due Date: 14th November, 2014 05:00 pm Submission Date: 14th November, 2014 Individual Assessment Cover Sheet / Plagiarism Declaration Form This form must be completed and included with each assessment you submit for marking to the School. Although this assessment is submitted electronically, you must still complete and include this form with your assessment. Student Number: | 201414094 | Unit Code No.: | MHC601 | Unit Title: | Accounting and Finance for Managers | Assessment No.: | Assessment 1: Portfolio Part 1 | Lecturer: | Dr. Zelko Livaic | Submission Date: | 14th November, 2014 | Declaration: I have read the School’s Policy on Plagiarism and Improper Conduct and all the materials pertaining to plagiarism. I declare that, to the best of my knowledge and belief, this assessment is my own work, all sources have been properly acknowledged, and the assessment contains no plagiarism. I further declare that I have not previously submitted this work or any version of it for assessment in any other unit or award offered by the School, or any other institution, without first ensuring that an explicit provision has been made and that I have obtained written permission from the Deputy Head of School for doing so. (Documentation...
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...SUBMITTED BY: PIYALI DASGUPTA Meaning of leverage In general ,leverage refers to accomplish certain things which are otherwise not possible i.e. lifting of heavy objects with the help of lever. This concept of leverage is valid in business also . In finance ,the term ‘leverage’ is used to describe the firm’s ability to use fixed cost assets or funds to increase the return to its owners; i.e. equity shareholders. In other words, the fixed cost funds i.e. debentures & preference share capital act as the fulcrum , which assist the lever i.e. the firm to lift i.e. to increase the earnings of its owner i.e. the equity shareholders. If earnings less the variable costs exceed the fixed costs i.e. preference dividend & interest on debenture, or earnings before interest and taxes exceed the fixed return requirement, the leverage is called favorable . when they do not ,the result is unfavorable leverage . Leverage is also the influence which an independent variable has over a dependent/related variable i.e. rainfall over production. In financial context, sales & fixed cost over profit. DIAGRAM Leverage in physics Leverage in finance LEVER LIFTING Increasing the earnings Fixed cost fund FULCRUM TYPES OF LEVERAGE OPERATING LEVERAGE The leverage associated with investment (asset acquisition) activities is referred as operating Leverage. Formula : operating leverage=contribution/operating profit Where , contribution=sales-variable...
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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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...CHAPTER 26 Marginal Costing and Cost Volume Profit Analysis Meaning Marginal Cost: The tenn Marginal Cost refers to the amount at any given volume of output by which the aggregate costs are charged if the volume of output is changed by one unit. Accordingly, it means that the added or additional cost of an extra unit of output. Marginal cost may also be defined as the "cost of producing one additional unit of product." Thus, the concept marginal cost indicates wherever there is a change in the volume of output, certainly there will be some change in the total cost. It is concerned with the changes in variable costs. Fixed cost is treated as a period cost and is transferred to Profit and Loss Account. Marginal Costing: Marginal Costing may be defined as "the ascertainment by differentiating between fixed cost and variable cost, of marginal cost and of the effect on profit of changes in volume or type of output." With marginal costing procedure costs are separated into fixed and variable cost. According to J. Batty, Marginal costing is "a technique of cost accounting pays special attention to the behaviour of costs with changes in the volume of output." This definition lays emphasis on the ascertainment of marginal costs and also the effect of changes in volume or type of output on the company's profit. FEATURES OF MARGINAL COSTING (1) All elements of costs are classified into fixed and variable costs. Marginal costing is a technique of cost control and decision making...
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...cents per message. Chapter 6: Cost Behavior: Analysis and Use LOOK AT CHAPTER 6 SLIDES Budget project: How many units do you need to break even. Also a cost volume profit graph. ON EXAM Mixed Costs Total Cost= Total fixed cost + Variable per unit * units ON EXAM: High-Low Method Ex: High hours of maintenance – Low hours / High Total Maintenance cost – Low Total Maintenance cost Predict Costs: 1) Account Analysis 2) High-Low Method Contribution Margin: Sales -Variable Costs = Contribution Margin -Fixed Costs =Net Operating Income Used for external reporting Used by management Sensitivity analysis: if sales are down 10% or If sales are up by 10% what’s your income. Can be checked by CM Contribution Margin Ratio: Total CM/ Total Sales In terms of Units: CM Ratio: Unit CM/ Unit SP Break even point in Units Sold: FC/ CM per Unit Break even point in total sales dollars: FC / CM Ratio Operating Leverage: Degree of Operating Leverage = Contribution Margin/ Net Operating Income 1) 2) Variable Cost: Fixed Cost: Mixed Cost: with Variable and Fixed: cell phone bill which is $50 a month and additional 20 cents per message. Chapter 6: Cost Behavior: Analysis and Use LOOK AT CHAPTER 6 SLIDES Budget project: How many units do you need to break even. Also a cost volume profit graph. ON EXAM Mixed Costs Total Cost= Total fixed cost + Variable per unit * units ON EXAM:...
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... $300,000 Salaries $140,000 Total $600,000 1. Compute the number of units to be sold to break-even. 2. Prepare a CVP graph (break-even chart) and show the break-even point on the 3. If the manage is paid a commission of $6 blouse (in addition to the salesperson’s commission), what will be the effect on company’s break-even point? 4. As an alternative to (3) above, company is thinking to pay $6 commission to manager on each blouse sold in excess of break-even point. What will be the effect of these changes on the net operating income or loss of the Beta company if 23,500 blouses are sold in a year? 5. Refer to the original data. What will be the break-even point of the company if commission is entirely eliminated and salaries are increased by $214,000? Should the company make this change? (1) Calculation of break-even point: Fixed expenses / Contribution margin per unit $600,000 / $30 20,000 units 20,000 units × $80 = $1,600,000 (2) CVP graph or break-even chart: (3) Break-even point if manager is also paid a commission of $6 per blouse sold: The payment of a commission of $6 to manager will decrease the unit contribution margin and increase the number of units required to sell to break-even. $600,000 / $24 25,000 Units Now the company requires 25000 units or $2,000,000 in sales just to break-even. (4) Effect on net operating...
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...Contribution Margin Ratio 11-2c Unit Contribution Margin 11-3 Mathematical Approach to Cost-Volume-Profit Analysis 11-3a Break-Even Point 11-3b Target Profit 11-4 Graphic Approach to Cost-Volume-Profit Analysis 11-4a Cost-Volume-Profit (Break-Even) Chart 11-4b Profit-Volume Chart 11-4c Use of Computers in Cost-Volume-Profit Analysis 11-4d Assumptions of Cost-Volume-Profit Analysis 11-5 Special Cost-Volume-Profit Relationships 11-5a Sales Mix Considerations 11-5b Operating Leverage 11-5c Margin of Safety 11-6 Chapter Review 11-6a Key Points 11-6b Key Terms 11-6c Illustrative Problem 11-6d Self-Examination Questions 11-6e Class Discussion Questions 11-6f Exercises 11-6g Problems 11-6h Cases Chapter 11: Cost Behavior and Cost-Volume-Profit Analysis Chapter Introduction Book Title: Survey of Accounting Printed By: Jean Mette (jeanlucmette@gmail.com) © 2015, 2013 Cengage Learning, Cengage Learning Chapter Introduction Learning Ojective After studying this chapter, you should be able to: Obj 1 Classify costs as variable costs, fixed costs, or mixed costs. Obj 2 Compute the contribution margin, the contribution margin ratio, and the unit contribution margin. Obj 3 Determine the break-even point and sales necessary to achieve a target profit. Obj 4 Using a cost-volume-profit chart and a profit-volume chart, determine the break-even point and sales...
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