AFM102 Lecture Notes - Lecture 18: Disturbance Storm Time Index, Ratia, Earnings Before Interest And Taxes

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apricottoad869

15 Oct 2015

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM102

Professor

Peter Blake

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Document Summary

Make decisions based on the numbers; need to know: selling price of product (s, sales volume/ level of activity, per unit variable cost, fixed costs in total dollars, mix of products sold. Contribution margin (how much i make every sale) = sales price variable costs. Contribution margin ratio = contribution margin/ sales. Operating income in total = 3. 5 lets say. This means that iif sales increases by 10% then operating income increases by 35% (3. 5 x 10) E. g. company is going to sell work benches for each. Variable costs are each, fixed costs are ,000/ month and sales volume for april was 4,000 benches. Contribution margin per unit = 40- 26 = . Contribution margin ratio = 14/40 = 35% Breakeven sales volume =,000/ 14= 3,572 benches per month. Breakeven sales in dollars = 50,000/ 35% = ,857. April operating income: 4,000 x - ,000 = ,000.

Related Questions

The Hampshire Company manufactures umbrellas that sell for$12.50 each. In 2014, the company made and sold 60,000 umbrellas.The company had fixed manufacturing costs of $216,000. It also hadfixed costs for administration of $79,525. The per-unit costs ofeach umbrella are as follows:

Direct Materials: $3.00

Direct Labor: $1.50

Variable Manufacturing Overhead: $0.40

Variable Selling Expenses: $1.10

Using the information above, perform a cost-volume-profit (CVP)analysis by completing the steps below.

1. Compute net income before tax.

2. Compute the unit contribution margin in dollars and thecontribution margin ratio for one umbrella.

3. Calculate the break-even point in units and dollars ofrevenue.

4. Calculate the margin of safety:

In units

In sales dollars

As a percentage

5. Calculate the degree of operating leverage.

6. Assume that sales will increase by 20% in 2015. Calculate thepercentage of before-tax income for this increase. Providecalculations to prove that your percentage increase is correctbased on the operating leverage calculated in step 5.

7. Compute the number of umbrellas that Hampshire is required tosell if it plans to earn $150,000 in income before taxes by usingthe target income formula. Proof your calculation.

8. A company that specializes in tours in England has offered topurchase 5,000 umbrellas at $11 each from Hampshire. The variableselling costs of these additional units will be $1.30 as opposed to$1.10 per unit. Also, this production activity will incur another$15,000 of fixed administrative costs. Should Hampshire agree tosell these additional 5,000 umbrellas to the touring business?Provide calculations to support your decision.

Requirement 1
	Units	Price	Totals
Sales	X	$	$
Variable Costs	X	$	$
Fixed Costs			$
Net Income			$

Requirement 2

Contribution Margin per Unitin Dollars = Selling Price â Variable Costs

Selling Price		Variable Costs	Contribution Margin per Unit



Contribution Margin Ratio =Contribution Margin/Selling Price

Contribution Margin		Selling Price	Contribution Margin Ratio


Requirement 3

Break-Even Point = Fixed Costs/ Contribution Margin

Fixed Costs		Contribution Margin	Break-Even Point in Units (Rounded)


Break-Even Point in Units XSelling Price per Unit = Break-Even Point Sales

Break-Even Point in Units		Selling Price per Unit	Break-Even Point in Sales (Rounded)


Requirement 4A

Margin of Safety in Units =Current Unit Sales â Break-Even Point in Unit Sales

Current Unit Sales		Break-Even Point in Sales	Margin of Safety in Units


Requirement 4B

Margin of Safety in Dollars =Current Sales in Dollars â Break-Even Point Sales in Dollars

Current Sales in Dollars		Break-Even Point in Dollars	Margin of Safety in Dollars


Requirement 4C

Margin of Safety as aPercentage = Margin of Sales in Units / Current Unit Sales

Margin of Safety in Units		Current Unit Sales	Margin of Safety Percentage



Requirement 5

Degree of Operating Leverage =Contribution Margin / Operating Income

Contribution Margin		Operating Income	Operating Leverage



Requirement 6
	Units	$ Per Unit	Totals
Sales	X	$	$
Variable Costs	X	$	$
Fixed Costs			$
Net Income			$

Operating Leverage		Times % Increase	Increase would be XX%


Prior Income	$	From Part 1
Increase	$	Prior Income X XX% Above
Total	$


Requirement 7

Targeted Income = (Fixed Costs+ Target Income) / Contribution Margin

Fixed Costs + Target Income		Divided by Contribution Margin	# of Units (Rounded)
Fixed Costs	$
Target Income	$
Total	$	$	X

		# of Units Above X $ Per Unit
Proof	Revenue	XX,XXX X $XX.XX	$
	Variable Costs	XX,XXX X $X.XX	$
	Contribution Margin		$
	Fixed Costs		$
	Net Income		$


Requirement 8

Sales Mix
	Current	Specialty	Total
Expected Sales Units	X	X
Revenue = Sales X Price	$	$	$
Variable Costs X Units	$	$	$
Contribution Margin	$	$	$
Fixed Costs	$	$	$
Operating Income			$

Prior Net Income FromRequirement 1			$

Additional Operating Income	(Operating Income Above Less Prior Income)		$

Decision With Explanation

redant669

Contribution margin ratio is 28%, sales are $800,000, and fixed costs are $175,000 calculate the following. Income from operations $ Breakeven point in dollars$ Margin of safety in dollars, at current level of sales$

indigohound570

In the month of March, Style Salon services 610 clients at anaverage price of $180. During the month, fixed costs were $25,758and variable costs were 70% of sales.

(a) Determine the contribution margin in dollars, per unit, andas a ratio.

Contribution margin	$____________?
Contribution margin per unit	$____________?
Contribution margin ration	____________%?

(b) Using the contribution margin technique, compute thebreak-even point in dollars and in units.

Break-even sales	$______________?
Break-even sales	_____________ units?

turquoiselocust583

AFM102 Lecture Notes - Lecture 18: Disturbance Storm Time Index, Ratia, Earnings Before Interest And Taxes

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