Unit 7 Managerial Accounting

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

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:

There would still be a net loss in 2006 due to the increase of break-even point, which increased from $7,505 to $8,640.

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.

a service department’s costs have been allocated, costs are not reallocated back to it under

Unit contribution = Unit Price – Unit Variable Cost = $1.80 – $1.40 = $0.40

According to the calculation, increasing volume at the same expensive cost will increase profit. Nonetheless, revising the freight cost and reducing its variable cost to 6% per container (1,625) from the base case (1,725), will affect the company profit positively. For example, with 10,000 containers(phase 1), the company earned a profit of $40,000/year, and with 60,000 containers(phase 3), the gain is $5,040,000 regarding the base case. After the 6% off in the variable cost, the firm could make a 3.85% phase1, 34,2% phase 2, 45,65% phase 3 of increase in its

When considering a healthcare providers revenue, This will result in higher revenues for the service providers as revenue

Break-even point analysis is a measurement system that calculates the margin of safety by comparing the amount of revenues or units that must be sold to cover fixed and variable costs associated with making the sales. In other words, it’s a way to calculate when a project will be profitable by equating its total revenues with its total expenses. There are several different uses for the equation, but all of them deal with managerial accounting and cost management (Break-Even Point, n.d.)

As an example, if fixed costs are $100, price per unit is $10, and variable costs per unit are $6, then the break-even quantity is 25 ($100 ÷ [$10 − $6] = $100 ÷$4). When 25 units are produced and sold, each of these units will not only have covered its own marginal (variable) costs, but will have also have contributed enough in total to have covered all associated fixed costs. Beyond these 25 units, all fixed costs have been paid, and each unit contributes to profits by the excess of price over variable costs, or the contribution margin. If demand is estimated to be at least 25 units, then the company will not experience a loss. Profits will grow with each unit demanded above this 25-unit break-even level.

penetration pricing strategy. All indications are that sales will continue to grow. In response to a

For instance, the concept of cost estimation which assists in estimating future expenditure as the expenditure depends on the cost of the respective activities can be applied in the setting of a budget which is simply an estimate and schedule of all costs required to be assigned to an activity. One can make an estimation of the resources required for an activity by applying the cost estimation techniques. Since there are limiting factors to each activity such as scarcity of resources for activities, the concept of constraints can be applied together with the concept of cost volume profit analysis to ensure that maximum benefits are driven from the scarce resources and the number of activities that are available. This facilitates the allocation of resources that most equitable and profitable. The theory of constraints is also applicable in the process of setting up budgets. In setting up budget one considers the amount of resources that are available and cannot therefore set a budget plan that exceeds the amount of resources that are available. This implies that the budget is constrained by the amount of

add more customers with little increases to fixed costs. The Bertrand model focuses on the

Let’s say Arrow corporate with Express, the gross total margins would decrease from 16.29% to 15.5% in optimistic scenario, and to 14% in pessimistic scenario (Exhibit 1). With expenses currently at 11%, a 22.5% decrease in Arrow’s operating profits would occur, which Express would have a difficult time making up