Exhibit 5 shows the breakdown of fixed costs. Exhibit 6 shows corresponding contribution margin for compensation based on a fixed fee as well as a 100% variable fee. If we assume Alltel would pay the talent 90% of ticket prices, which would vary slightly depending on talent, while maintaining the same facilities charge and service charge, the total contribution margin drops form $37 per paying customer to just over $15.While this is not ideal, the benefit is the reduction in up front expenses required. By going to 100% variable compensation Alltel no longer has a substantial fixed cost associated with paying the talent. Since Alltel only received ~10% of sales, we would suggest Alltel no longer handle the promoting, saving them another $20k in fixed advertising cost. The talent would now be in charge of the promotion. They would have the most to gain from the promotion as they would retain 90% of sales. Hiring a promoter would have its own ROI calculation and Alltel could certainly continue to offer the services but with a fixed price outsourced model or affiliate variable compensation model negotiable with each event. Alltel is not a true promoter and this would allow them to focus attention on their core business and let true promoters promote. The net result of this is a contribution margin 38% and a breakeven of 5264 paying customers. This is down from the previous breakeven of 8341. We would describe this process of
Unit contribution = Unit Price – Unit Variable Cost = $1.80 – $1.40 = $0.40
The financial income statement shows everything of pay and expenses of their business advantage. It is in like way called an advantage and adversity decree. The wage clarification mirrors a period. For example, a wage enunciation for the quarter completing off with March, on the 31st displays pay and expenses for the months January, February, and March. If the pay clarification is for the timetable year completing off with December, on the 31st, it would cover every one of their information from January initially to December 31st.
3) The breakeven analysis is likely to be more important for a fixed fee performer because the fixed costs are higher (because of the talent cost), and there is a greater risk from poor attendance at the event.
| If variable costs increase, but price and fixed costs are held constant, the break even point will decrease.
Unit 38 Business and the Economic EnvironmentLearner name Assessor nameSameeha Hussain/Antonio ZarroDate unit issuedUnit DeadlineDate unit submitted by student27/01/1419/04/14 Criteria referenceTo achieve the criteria the evidence must show that the learner is able toAsst Task no. Assessor initial date when metPASS CRITERIAP1 Explain the effects of changes in the economic environment on a selected business P2 Identify how government policies impact on a selected business P3 Identify the impact of government spending on a selected businessP4 Explain how both fiscal and monetary policy decisions have affected a selected businessP5 Describe the impact of international factors on a selected business M1 Analyse the implications of
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
Suppose its average cost is $15 and its average variable cost is $8. Its contribution margin (i.e., contribution to fixed cost) is
New Contribution Margin = New Price per unit – Variable cost per unit =$8.5-$2.5 =$6
a service department’s costs have been allocated, costs are not reallocated back to it under
The difference in a traditional income statement and a contribution margin income statement is how the variable and fixed costs are used. A contribution margin income statement in an income statement that shows all variable expenses to be deducted from sales. This, in turn, provides a contribution margin, and then all fixed expenses are subtracted to provide the net profit or loss (Accounting for Management, n.d.) . The contribution margin income statement uses the variable costing method (Basu, n.d.). Instead of being part of the product costs, the fixed manufacturing costs are included in the overhead costs. Behavioral structure of the business is the driving force for the contribution margin income statement (Sawyers, Jackson, & Jenkins,
Company operates in the Industrial Sector – Services, and Industry – Regional Airlines. According to the Standard Industrial Classification System (SIC), company belongs to the industry group 451: Air
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.
penetration pricing strategy. All indications are that sales will continue to grow. In response to a
In other words, variable cost per unit is equal to the slope of the cost volume line (i.e. change in total cost ÷ change in number of units produced).