Training guide to break even analysis. What is breakeven analysis? Break even analysis is a calculation to show at what point you are making no profit or loss‚ so it is when a businesses total revenue covers total costs so it is to show how much output you will have to produce to cover your total costs‚ within a business. Break even is usually shown in the form of a graph. To work out the break even point of a business you need 3 important components which are: 1. Fixed costs‚ which are not
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Salem Telephone Company-Case Study Peter Flores‚ President of Salem Telephone Company‚ believes that a computer subsidiary company (Salem Data Services) appears to be unprofitable. And because of this‚ he must decide and determine whether it is actually unprofitable and consider whether changes in prices or promotion might improve profitability by using the Break-Even point analysis. But before we come out to any solutions‚ we must discuss Salem Data Services accounting report
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1.) "Revenue hours" represent the key activity that drives costs at Salem Data Services. Which expenses in Exhibit 2 are variable with respect to revenue hours? Which expenses are fixed with respect to revenue hours? Variable: Wages of hourly personnel‚ Power Fixed: Rent‚ custodial services‚ computer leases‚ maintenance‚ depreciation‚ salaried staff wages‚ administration‚ sales‚ systems development‚ sales promotion‚ corporate services 2.) For each expense that is variable with respect to
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1. Revenue hours" represent the key activity that drives costs at Salem Data Services. Which expenses in Exhibit 2 are variable with respect to revenue hours? Which expenses are fixed with respect to revenue hours? Expenses Spase costs: Rent Fixed cost1 Custodial services Fixed cost2 Equipment costs Computer leases Fixed cost3 Maintenance Fixed cost4 Depreciation: Computer equipment Fixed cost5 Office equipment and fixtures Fixed cost5 Power Variable cost6 Wages and salaries
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Turkesa Bullock BUS 5431 Managerial Accounting January 31‚ 2013 Salem Telephone Company Harvard Case Study Recommendation: The two suggestions by Flores: 1. Use pricing strategy to increase commercial revenue hours * This method will not add extra costs. However‚ according to our estimation above‚ changing price to either $1000 (97 hours) or $600 (180 hours) cannot prevent a net loss. 2. Increase sales promotion cost to win more business but the price unchanged *
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#3 Break-Even Analysis Rob Holland Assistant Extension Specialist Agricultural Development Center September 1998 One of the most common tools used in evaluating the economic feasibility of a new enterprise or product is the break-even analysis. The break-even point is the point at which revenue is exactly equal to costs. At this point‚ no profit is made and no losses are incurred. The break-even point can be expressed in terms of unit sales or dollar sales. That is‚ the break-even units
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GETWELL CLINICS BREAKEVEN ANALYSIS Analyzing Break-Even Points and Dealing with Practice Constraints INSTRUCTIONS: FILL IN THE YELLOW HIGHLIGHTED AREAS • Explain the relevance of Diagnosis Related Groups (DRG) analysis as a tool that drives costs and affects management decisions in health care. Diagnosis Related Groups is a system that categorized patients into specific groups based
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Question: Undeniably‚ breaking even is not the ultimate goal of firms. Why then bother about the break-even analysis? THE IMPORTANT OF BREAK-EVEN ANALYSIS It is an undisputable fact that every business’ objective is to survive and make profit as compensation of being in existence. Frankly‚ predicting a precise amount of sales or profits is nearly impossible. No business aims at making losses whatsoever. Given this‚ a person starting a new business often asks‚ ‘’ At what level of sales will my
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1. Revenue hours represent the key activity that drives costs at Salem Data Services. Which expenses in Exhibit 2 are variable with respect to revenue hours? Which expenses are fixed with respect to revenue hours? A) Variable with respect to revenue hours Hourly personnel Salaries expense Power Expense B) Fixed expenses with respect to revenue hours: Rent Custodial services Computer leases Maintenance Depreciation of computer equipment‚ office equipment and fixtures
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PRACTICE QUESTIONS ON BREAK-EVEN ANALYSIS 1. A small firm intends to increase the capacity of a bottleneck operation by adding a new machine. Two alternatives‚ A and B‚ have been identified and the associated costs and revenues have been estimated. Annual fixed costs would be $40‚000 for A and $30‚000 for B; variable costs per unit would be $10 for A and $12 for B; and revenue per unit would be $15 for A and $16 for B. a) Determine each alternative’s break-even point in units. b) At what volume of
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