Contribution Margin and Breakeven Analysis Simulation
Juan Vázquez-Nieves, RN, BSN James Ciaramella
University of Phoenix
Contribution margin and breakeven analysis proved to be challenging, once again I’m face to interpret what I believe to be true. First going over the assign simulation was demanding to the point of taking the simulation three times or more, latter the article also proved to be a challenging in the attempts to express and explain my thoughts.
Considering Large Bulk Order
In order for Aunt Connie’s Cookies to decide how to proceed with the order she will need to understand the concept of contribution margin. A contribution margin reveals how the business would direct their resources. In the case of ACC to accept the proposal the manager who have to determine the following the sale price of the Real Mint minus the Variable Cost which then give the Contribution Margin. ACC has a production capacity of 3,500 (‘000 packs) in order to meet and accept the order ACC would have to reduce their current production of Real Mint to 1,500 (‘000 packs) and place an additional order of 1,000 (‘000 packs). This way ACC meets with bulk order requirements and does not affect the production of Lemon Crème.
ACC should not accept the order if this was to affect maximizing operational profit. If ACC where to reduce Lemon Crème instead of Real Mint, ACC would not achieve maximizing operational profit. Furthermore ACC would want to produce more of Lemon Crème which gives greater contribution margin per unit.
Peanut Butter Cookie Plant
By ACC acquiring the new plant, ACC would be able to meet their projection of 650,000 (‘000 packs) with an additional contribution margin of 480 plus 940 from current units of Lemon Crème cookies. However if ACC where to buy the unit and continue to produce Peanut Butter cookies they would have a negative contribution margin. In other words the production
References: Cost-volume-profit analysis. (2005). In International Encyclopedia of Hospitality Management. Retrieved from http://www.credoreference.com/entry/esthospitality/cost_volume_profit_analysis Calculating Contribution Margin. (2009). In BUSINESS: The Ultimate Resource. Retrieved from http://www.credoreference.com/entry/ultimatebusiness/calculating_contribution_margin General Medical and Surgical Hospital. Encyclopedia of American Industries. Online edition. Gale, 2010. Reproduced in Business and Company Resource Center. Farmington Hills, Mich.; Gale Group. 2010 http://galenet.galegroup.com.ezproxy.apollolibrary.com/servlet/BCRC