Cost Management

Satisfactory Essays
3-57
A. The investors and creditors are interested in knowing things like CVP because it is a very easy way to address how much money sales a company needs in order to make a profit. They care if the sales mix is accurate because if the sales mix is different, it because a completely different calculation.
B. The first financial model was not useful because it did not separate fixed and variable cost. That means a CVP analysis cannot be done. It separated costs into manufacturing and cost of goods sold which is not as useful as knowing which costs are fixed or variable.
C. If I were going to invest in RBC, I would make sure the sales mix is accurate. It is important because the variable cost of beer is only 15% of the beer sales while food and other is 33% and 35% respectively. If food sales are much higher the CM goes down and it results in the Break Even Point being much higher.
D. It is difficult to find out how much it costs for a pint of beer because it lists total beer sales without saying how many were sold. It is given as a total percentage of sales which means price or units cannot be figured out.
E. The Contribution Margin for the company is 822,212/1,953,000=.420999 Break even then would be Sales Dollars=Fixed Cost/CMR 520000/.420999=$1,235,156
Margin of Safety is Actual Sales-Breakeven Sales=MOS is 1,953,000-1,235,156=$717,844
The percentage is 717,844/1,953,000= 36.8%
RBC cannot find the breakeven point in units because there is no number of units given in the problem or the cost of one pint of beer.
Sales required for a $200,000 profit is (520,000+200,000)/.420999=$1,710,216
Sales required for a $500,000 profit is (520,000+500,000)/.420999=$2,422,806
It assumes that the CM ratio will be the same .420999 so sales mix must be 40% beer, 55% Food Sales and 5% other sales.

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