assignment-Finance

 

Revise the document and make it original ……due date 9/16/2013  @ 11:00 PM CST

 

BREAKEVEN

The breakeven analysis point has many variables:

· Selling Price per Unit: The set market value for sales of the product.

· Fixed Cost totals: The Activity Based Costing of production per unit. This is fixed.

· Variable Cost total: Projected total production costs including variables.

· Unit Cost variables: Expenses beyond production control that is unexpected.

· Net Profit forecast: Total revenue minus total cost. Production cost is the breakeven point.

When a firm offers many different products, an average contribution margin per unit

defines the fixed cost of the product. Then the profit generated above the breakeven point is the

number of units the division must sell for the company to breakeven. This average or weighted

average has a contribution margin. It measures the expenses the company has to invest to

produce and market the products.

Contribution margin and contribution margin ratio

The accompanying Excel spreadsheet was utilized to calculate the breakeven point for

Competition Bikes, inc

Example of the formula:.

The ABC method used to figure the breakeven point, must have accurate figures.

Periodically, with an increase in production the breakeven point of a product increases. To

determine the new breakeven point, requires new fixed and variable costs input. Into the

spreadsheet that was created. This will provide the new breakeven point.

Example:

The individual breakeven point per unit is accomplished by calculating the product mix.

The titanium line divided by the total and the Carbon Lite divided by the total. A weighted

margin is arrived at $181.71. If $ 399, 943 is the fixed cost then divided by breakeven of $181.71

the total sales of units required is 2201 units.

Weighted average with the titanium line of 900 in sales at nearly twice that of the

Carbonlite with 500 sales. The weighted average contribution margin is $181.71. Individual unit

calculations are $ 221 for each titanium sale and $ 111 for each Carbonlite sale.

Net earnings to remain constant would require more sales to break even.

BREAKEVEN ANALYSIS CHANGE

It is common knowledge that the end product’s price must increase, if a firm’s fixed and

variable expenses increase. Competition Bikes, inc. must increase their per unit sales price to

achieve the same breakeven point, If the firm is forced to increase their fixed costs by $50,000

and vendors increase material costs by 10%. This may be avoided if the company negotiates a

decrease in supplies for the purchase of a higher quantity, they must be careful to not end up with

excess inventory at year end.

Cost-volume-profit ( CVP ) is used to analyze how an increase in raw materials and

reduced production can negatively affect a company. A CVP analysis must include sales,

administrative costs and manufacturing costs. These expenses should be labeled variable or

fixed.

 Sales price per unit is constant per schedule- fixed.

 Variable costs per unit are fixed and constant.

 Total fixed costs are fixed an constant.

 Assuming everything produced is sold.

 The effects of costs are only because of activity changes.

 All products produced by a company are sold in the same mix

Example of utilizing the CVP. When the fixed costs are increased by $50,000 and with an

increase of 10 percent in raw materials, the results for Competition Bikes inc., the contribution

profit margin for the Titanium line went from $ 221 to $ 191. The Carbon Lite went from $111to

$44.

The weighted breakeven was $690 but increased to $871 for Competition Bikes, inc. due

to the $50,000 overhead cost and the 10 percent materials increase. With the decrease in

contribution profit sales price, obviously they must increase sales price and / or increase sales

volume. If we increase our overhead an additional $50,000 and we have an additional increase of

10 percent of raw materials our new breakeven point on sales will be 3254 more units. Nearly a

50 percent increase.

The cost profit tab shows with the increases in the $ 50,000 overhead and 10 percent

product increase, the Titanium sales price goes to $1415 from $900, the variable cost goes to

$709.30 and the contribution margin drops to $191 from $221. The carbonlite price at $1,495,

the variable costs goes to $ 1,451 with only a contribution margin profit of $44 from $111. The

sales weight average contribution margin per unit is $138 from $181.71. We need to sell 2092

titanium models and 1162 carbonlite models.

With the $50, 000 increase and only a weighted average of $138 from $181 – this

requires an additional sale of 362 units.

In summary, with both of these increases, we will have to increase our sales from 2201 to

3254.