000 Formula : Revenue = Units Sold * Unit price Contribution Margin = Revenue – All Variable Cost Contribution Margin Ratio = Contribution Margin/Selling Price Break Even Points in Units = (Total Fixed Costs + Target Profit )/Contribution Margin Break Even Points in Sales = (Total Fixed Costs + Target Profit )/Contribution Margin Ratio Margin of Safety = Revenue - Break Even Points in Sales Degree of Operating Leverage = Contribution Margin/Net Income Net Income = Revenue – Total Variable
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30 tons at a retail price of Cr. 8.2 is the Contribution Margin Contribution margin = revenue - variable costs Price to Dansk Minox 5.26 Incremental Cost 3.23 Less: Transportation‚ storage (.20) Labor (.50) 2.53 Profit Contribution 2.73 Volume 30 tons (30‚000 Kg) Contribution Margin( 2.73×30‚000) 81‚900 Question
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FIVE STAR TOOLS Executive Summary Five Star Tools‚ a tools manufacturer is faced with production constraints. Overview of the Situation • Focuses on various ways to loosen constraints • Demonstrates how to identify which products are most profitable and which products are less profitable when confronted with constraints • Makes the point that large profits that may be lost if a company does not adequately deal with constraints Issues Addressed 1. What is the situation facing Five Star
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the new product the contribution margin per unit and contribution margin per ratio are necessary. The equation for contribution margin per unit is Selling Price + Variable Cost‚ or $30 + $14‚ for a contribution margin per unit price of $16. The equation for contribution margin ration is Contribution Margin per Unit / Selling Price‚ or $16/$30‚ for a contribution margin ratio of 53%. The break-even point in units is calculated by dividing the fixed costs by the contribution margin per unit value‚ $2
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INC. CVP Income Statement For the Quarter Ended March 31‚ 2010 Sales $2‚200‚000 Variable costs 1‚076‚000 Contribution Margin 1‚124‚000 Fixed costs 583‚000 Net income $541‚000 Question 2 - Solution BRUNO MANUFACTURING INC. CVP Income Statement For the Quarter Ended March 31‚ 2010 Sales $2‚200‚000 Variable costs ($920‚000 + $70‚000 + $86‚000) 1‚076‚000 Contribution Margin 1‚124‚000 Fixed costs ($440‚000 + $45‚000 + $98‚000) 583‚000 Net income $541‚000 Question 3 For Dousmann
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Sound have to sell in order to earn $ 390‚000? 4 What is the firm‟s margin of safety? 5 Management estimates that direct labour costs will increase by 10% next year. How many units will the company have to sell next year to reach its break even point? 6 If the company‟s direct labour costs do increase by 10 percent‚ what selling price per unit of product must it charge to maintain the same contribution margin ratio? WwW.DiorBoy.Com All Rights for Abdulmohsen WwW.DiorBoy
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The break even point in units and sales have increased form 2003 to 2004 to 2006 due to the greater increase in fixed costs especially from expanding the business as well as insufficient average sales and unit sales to compensate these changes. The margin of safety has decreased over the years due to the increase in expenses and the lack of gross profit to compensate. Calculations: | | 2003 | 2004 |2006
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unit × 410‚000 units) $27‚880‚000 Variable costs ($60 per unit × 410‚000 units) 24‚600‚000 Contribution margin $ 3‚280‚000 1b. Contribution margin (from above) $3‚280‚000 Fixed costs 1‚640‚000 Operating income $1‚640‚000 2a. Sales (from above) $27‚880‚000 Variable costs ($54 per unit × 410‚000 units) 22‚140‚000 Contribution margin $ 5‚740‚000 2b. Contribution margin $5‚740‚000 Fixed costs 5‚330‚000 Operating income $ 410‚000 3 Operating income is expected
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QUESTION a). Name five assumptions that underline the use of break – even analysis. It is essential that anyone preparing or interpreting CVP information is aware of the underlying assumptions on which the information has been prepared. If these assumptions are not recognized‚ serious errors may result and incorrect conclusions may be drawn from the analysis.(Drury‚ 2004). Breakeven analysis (cost-volume-profit analysis) is an approach to profit planning that requires derivation of various relationships
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$836 $81 3. Use the data you collected in Requirement 2 to calculate each segment’s sales margin. Interpret your results. Sales Margin = Operating Income / Sales Painting Stores Group: Sales Margin= 862 / 5410 = 15.9% Consumer Group: Sales Margin = 217 / 1322 = 16.4% Global Finishes Group: Sales Margin = 147 / 1961 = 7.5% Latin America Coatings Group: Sales Margin = 81 / 836 = 9.7% 4. Use the data you collected in Question 2 to calculate each segment’s capital turnover
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