Managerial Accounting Exam

d) Break even sales change that would change the profits by the same amount as a reduction in price.

5. Fixed costs can be discretionary or committed. Using your judgment based on the discussion in the case, identify which costs are likely to be discretionary. Assuming that management is able to decrease discretionary fixed costs by 10%, what would be the impact on Bridgestone’s break-even point revenues?

Breakeven Analysis for Product Tylenol Approach 1 - Same price as Tylenol Approach 2a - Cheaper than Tylenol Approach 2b - Cheaper w/lowered trade cost $ $ $ $ Unit Cost (Variable Cost) 0.60 0.60 0.60 0.60 Trade Cost (Selling Price to Retailers) $ 1.69 $ 1.69 $ 1.05 $ 0.70 Fixed Cost (Advertising) 2,000,000 6,000,000 6,000,000 6,000,000 Break-Even Quantity [Fixed Cost/(Trade Cost-Unit Cost)] 1,834,862 5,504,587 13,333,333 60,000,000 Contribution Margin (Unit) 64% 64% 43% 14%

The percentage Breakeven Sales Change can be calculated simply by dividing the unit sales change by the initial sales level, or may be calculated more directly with the following expression:

In order to calculate the breakeven point, we use the following equation and budget data:

At breakeven, Q=6,658 paying customers who will be in attendance with an additional .25 x 6,658 = 1,665 comp customers.

Although the financial goal is to create profit, we need to calculate the breakeven point to get started.

Determine the unit break-even point, assuming fixed costs are $60,000 per period, variable costs are $16.00 per unit, and the sales price is $25.00 per unit.

Based on the Excel Problem of chapter one, if the total capacity for this business is 725 will you stay in it? If you want to stay in it what price you need to obtain a break even point of 725?

2.) For each expense that is variable with respect to revenue hours, calculate the cost per revenue hour.

In the case study, as the annual fixed cost is $6,000,000 and the contribution margin per event is $1,900. Therefore, the breakeven point is at the 3,158

Breakeven = fixed cost/margin = total dollar fixed costs/ unit selling price –unit variable costs

It is particularly interesting to note that the higher the fixed costs, the higher the break-even point. Thus, companies with large investments in equipment and/or high administrative-line ratios may require greater sales to break even.

A negative gain of revenue of $7920 with further decrease on income of $6,286 in first quarter is recorded. However, the situation is much better than increase hourly rate. More, idle time is reduced greatly to from 530 to 412 hours(22%). If we can utilize all the idle hours, then we can maximize the income. According to hint on proportional relationship of increase / decrease hourly rate thus leads to lower and pump up sales, we can calculate the revenue in adjusting the hourly rate.

Break Even Point in Sales = (Total Fixed Costs + Target Profit) ÷ Contribution Margin Ratio