Math 540

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?

2.) What is the ‘relevant range’ for the cost structure? In other words, at what volume might you expect the fixed and variable costs to change appreciably?

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%

Note: You can assume that variable costs are constant so that the average of them is the variable cost relevant for a change in sales.

* Variable costs: Assumed from exhibit 6. It will increase the same 8% as the variable revenue.

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.

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.

There are some limitations of break-even as well. For example, it cannot give accurate results if the data used for it is predicted. Data such as change in direct cost

We assume that Net fixed assets as percentage of sales will eventually become constant at 1%, and revenue growth rate will eventually become constant at 6%, thus the assumed profit margin will also eventually become constant. It is reasonable to assume that at the beginning the profit margin increases because Crocs enjoys economics of scale and direct sales

Data comprises of factual information. Data are the facts from which information is derived. Data is not necessarily informative on its own but needs to be structured, interpreted, analysed and contextualised. Once data undergoes this process, it transforms in to information. Information should be accessible and understood by the reader without needing to be interpreted or manipulated in any way.

In addition to their value as learning exercises, doing a careful and thorough job on the

3. Assume that cost of goods sold for a company consists only of variable costs and gross margin is = (revenue – cost of goods sold)/revenue. Which of the following is true

3.Monthly fixed costs: Technically, a break-even analysis defines fixed costs as costs that would continue even if the company went broke. Instead, always use the regular running fixed costs, including payroll and normal expenses (total monthly Operating Expenses). This will give the company a better insight on financial realities (Berry 2004.)Exhibit A, below, shows a 12-month income statement for three levels of fixed costs: $50,000, $75,000, and $100,000. Variable costs are constant at 40% of net sales:Fixed costs

5) Illustrate how the break-even looks like and describe the usefulness of Break-even analysis and discuss some of the limitations of break-even charts