MGAB03H3 Chapter Notes - Chapter 3: Fixed Cost, Income Statement, Cud
Document Summary
Get access
Related Documents
Related Questions
Name the definitions given below:
______________ | 1. | Technique that examines changes inprofits in response to changes in sales volumes, costs, andprices. |
______________ | 2. | Percent by which the selling price (orrevenue) per unit exceeds the variable cost per unit, orcontribution margin as a percent of revenue. |
______________ | 3. | Diagram of the relationship betweentotal revenues and total costs; illustrates how an organizationâsprofits are expected to change under different volumes ofactivity. |
______________ | 4. | Index of the extent to which the costfunction is made up of fixed costs. |
______________ | 5. | Total revenue minus total variable costs. |
______________ | 6. | Proportion of different products or services that anorganization sells. |
______________ | 7. | Excess of an organizationâs expectedfuture sales (in either revenue or units) above the breakevenpoint. |
______________ | 8. | The level of activity where equal costor profit occurs across multiple alternatives. |
______________ | 9. | Selling price per unit minus variablecost per unit. |
______________ 10. | Level of operating activity at whichrevenues cover all fixed and variable costs and there is noprofit. | |
______________ 11. | Margin of safety as a percentage ofactual or estimated sales (units or revenues). | |
______________ 12. | A systematic tendency for people to beoverly optimistic about the outcomes of their plans andprojects. |
Name the definitions given below:
______________ | 1. | Technique that examines changes inprofits in response to changes in sales volumes, costs, andprices. |
______________ | 2. | Percent by which the selling price (orrevenue) per unit exceeds the variable cost per unit, orcontribution margin as a percent of revenue. |
______________ | 3. | Diagram of the relationship betweentotal revenues and total costs; illustrates how an organizationâsprofits are expected to change under different volumes ofactivity. |
______________ | 4. | Index of the extent to which the costfunction is made up of fixed costs. |
______________ | 5. | Total revenue minus total variable costs. |
______________ | 6. | Proportion of different products or services that anorganization sells. |
______________ | 7. | Excess of an organizationâs expectedfuture sales (in either revenue or units) above the breakevenpoint. |
______________ | 8. | The level of activity where equal costor profit occurs across multiple alternatives. |
______________ | 9. | Selling price per unit minus variablecost per unit. |
______________ 10. | Level of operating activity at whichrevenues cover all fixed and variable costs and there is noprofit. | |
______________ 11. | Margin of safety as a percentage ofactual or estimated sales (units or revenues). | |
______________ 12. | A systematic tendency for people to beoverly optimistic about the outcomes of their plans andprojects. |
Contribution Margin Analysis:
We calculatecontribution margin by taking our sales revenue less our variablecosts. This basically tells us the portion of our sales that areavailable to cover the fixed cost of the business.
Contribution marginper unit is especially useful. We compute this by taking our salesrevenues per unit less our variable cost per unit. With this, wecan easily compute our break-even point.
Dog Day Care
Pricing at $18 per dog per day, you can expect to have 22 dogsper day
Pricing at $20 per dog per day, you can expect to have 15 dogsper day
Pricing at $25 per dog per day, you can expect to have 10 dogsper day
· Overnight Boarding
Pricing at $25 per dog per day, you can expect to have 12 dogsper day
Pricing at $28 per dog per day, you can expect to have 10 dogsper day
Pricing at $430 per dog per day, you can expect to have 7 dogsper day
Basic Groom
Pricing at $25 per dog per day, you can expect to have 5 dogsper day
Pricing at $30 per dog per day, you can expect to have 4 dogsper day
Pricing at $35 per dog per day, you can expect to have 3 dogsper day
Break-Even Analysis:
Break-even analysis isa key element of cost-volume-profit analysis. The technique ishelpful for new and small businesses to assess the viability oftheir start-up. However, it can also be quite beneficial forestablished businesses when evaluating new and existing productlines.
In this exercise, weare computing not only the break-even point but also the number ofunits that must be sold in order to earn given levels of targetprofit.
The break-even formulais:
Fixed Costs /Contribution Margin per Unit
The formula to computethe level required for a target profit is:
(Fixed Costs + TargetProfit) / Contribution Margin per Unit
We have alreadycomputed fixed costs for each area in our Milestone One. We will beusing these figures as follows:
Grooming, fixed costs:2,367.92
Daycare, fixed costs:859.39
Boarding, fixed costs:1,378.99
Our computations wouldthen be as follows:
Grooming
Sales Price $25
Break-even: 158
$1,000 Profit: 225
$1,500 Profit: 258
Sales Price $30
Break-even: 119
$1,000 Profit: 169
$1,500 Profit: 194
Sales Price $35
Break-even: 95
$1,000 Profit: 135
$1,500 Profit: 155
Daycare
Sales Price $18
Break-even: 65
$417 Profit: 97
$667 Profit: 116
Sales Price $20
Break-even: 57
$417 Profit: 84
$667 Profit: 101
Sales Price $25
Break-even: 43
$417 Profit: 64
$667 Profit: 76
Boarding
Sales Price $25
Break-even: 79
$583 Profit: 112
$909 Profit: 130
Sales Price $28
Break-even: 67
$583 Profit: 96
$909 Profit: 111
Sales Price $30
Break-even: 61
$583 Profit: 87
$909 Profit: 102
Break-EvenAnalysis | ||||||||||||||||||
Instructions - Showall steps and calculations to determine the break-even, as well asthe break-even for the target profit levels as outlined in theinstructions. Round all decimals UP to next wholenumber | ||||||||||||||||||
Grooming | Day Care | Boarding | ||||||||||||||||
Break-even Units= | Break-even Units= | Break-even Units= | ||||||||||||||||
Fixed Costs | Fixed Costs | Fixed Costs | ||||||||||||||||
Cont. Margin | Cont. Margin | Cont. Margin | ||||||||||||||||