Mat 540 Quiz 1 Essay

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

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%

To reposition its water as a premium product, Healthy Spring will require an increase in its advertising and promotion budget of $900 daily. What is the maximum sales loss that Healthy Spring could tolerate before a 20% price increase would fail to increase its net profit? (That is, what is the breakeven sales change, including the incremental fixed cost of the advertising campaign?)

Elimination of sales commision would affect the break-even volume to decrease, since the selling staff would have a lower incentive to sell due to having a cut of their commision salary. Eventually, this process would see a decrease in profit, since there would be no longer same selling jewellery incentive as before when the staff was paid in commissions. Therefore we strongly recommend to management to maintain selling commissions to to allow for an increased motivation, which would see an increased in the profit.

5. Determine the necessary sales in unit and dollars to break-even or attain desired profit using the break-even formula.

To find the break-even point for napkins, you use the same formula. The fixed cost is still $420,000.00. The selling price of napkins is $7.00. The variable cost is $4.50. $7.00 minus $4.50 is $2.50. So then you take $420,000.00 and divide it by $2.50 to find the breaking point of $168,000.00. The company will have to sell $168,000.00 to break even in sales. The margin for safety for napkins is -$48,000.00. This is found by subtracting the actual or expected cost of $120,000.00 by the break-even point of $168,000.00. You can cut sales by $48,000.00 and not sustain a loss.

Fixed costs in 2004 are lower that of 2003 and contribution margin ratio is higher in 2004 than that of 2003. Hence, the break even point is lower for 2004.

Price: What is the cost (financial or nonfinancial) to the priority population to obtain the product and its benefits? In the budget I submitted there was a cost of $43,266 for the first year. We have sponsorships and a fundraiser but we will have to do some grant writing for the next three years while we institute the program. In anticipation of potential classroom interruptions and challenges while the program is being introduced we have recruited support from parents, mentors provided by our business partner and our sponsor Northern Mutual Insurance Corporation to provide tutoring and other supports as needed before and after school, once or twice a week. The district has increased its budget for paraprofessionals. Some of paraprofessionals within the district at a nearby school will be flexing their time between schools to provide additional in classroom support for the most challenging classrooms or students. When we successfully implement the program we hope to use the same paraprofessionals that are trained to begin the program in the other school. This program will cost everyone in the school extra effort to implement, in addition to any financial cost.

Example: for 25 adults the cost would be $220.59 per person. However, this does not include food and beverages. We would make menus and figure out the cost and publish it NLT March 1st. All of you great cooks would get a chance to show off your

In addition to affecting profits by adjusting useful life and depreciation; key ratios will also be affected. The net profit margin can be influenced both ways to fit the purpose of business strategy. It could be increased to make it seem more profitable, or it can be influenced in a negative way to write off as much expenses as possible – if the year held disappointing results – in order to show next year more positively in comparison.

It is important to realize that a company will not necessarily produce a product just because it is expected to break- even. Many times, a certain level of profitability or return on investment is desired. If this objective cannot be reached, which may mean selling a substantial number of units above break-even; the product may not be produced. However, the break-even is an excellent tool to help quantify the level of production needed for a new business or a new product. Once the break-even point is met, assuming no change in selling price, fixed and variable cost, a profit in the amount of the difference in the selling price and the variable costs will be recognized. One important aspect of break-even analysis is that it is normally

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

If variable costs increase by 15%, and management increases its billing rate by 15%, what is the effect on the breakeven point, in billable dollars?

Question 1: How do you think the cost of $240 would have been calculated? (2 marks)

If the profit on sales revenue is 20% then profit on cost will become 25%(20%/80%)