Problem 213

1
Problem 2-13

• How many meals do they need to serve to make
  8,400 profit?

2
Problem 2-13

• How many meals do they need to serve to make
  8,400 profit?
• Let x meals
• Sales VC FC 8,400
• 18x 9.6x - 21,000 8,400
• 8.4x 29,400
• x 3,500 meals

3
Problem 2-13

• What is the BE point in of meals served per
  month?

4
Problem 2-13

• What is the BE point in of meals served per
  month?
• Let x meals
• Sales VC FC 0
• 18x 9.6x - 21,000 0
• 8.4x 21,000
• x 2,500 meals

5
Problem 2-13

• FC increase to 29,400, VC increase to
  11.5/meal, Price increases to 22, how many
  meals to make 8,400?

6
Problem 2-13

• FC increase to 29,400, VC increase to
  11.5/meal, Price increases to 22, how many
  meals to make 8,400?
• Let x meals
• Sales VC FC 8,400
• 22x 11.5x - 29,400 8,400
• 10.5x 37,800
• x 3,600 meals

7
Problem 2-13

• Loose 10 of customers _at_ 22. What is the
  profit/month? (Assuming 3,500 customers per
  month?)

8
Problem 2-13

• Loose 10 of customers _at_ 22. What is the
  profit/month? (Assuming 3,500 customers per
  month)
• 3,500 x 10 350 customers lost
• 3,500 350 3,150 customers
• Let x profit
• Sales VC FC x
• 22(3150) 11.5(3150) - 29400 x
• 10.5(3150) - 29400 x
• x 3,675

9
Problem 2-13

• FC increase by 2000/month. Customers increase
  from 3150 to 3450. What is the effect on profit?

10
Problem 2-13

• FC increase by 2000/month. Customers increase
  from 3150 to 3450. What is the effect on profit?
• Let x profit, Sales VC FC x
• 22(3450) 11.5(3450) - 31,400 x
• 10.5(3450) - 31,400 x
• 4,825 x
• 4,825 - 3,675 1,150 increase in profit
• Can you verify this using the increase in CM and
  FC?

11
Problem 2-13

• FC increase by 2000/month. Customers increase
  from 3150 to 3450. What is the effect on profit?
• Increase in CM 10.5 x 300 3,150
• Increase in FC
  (2,000)
• Increase in Profit 1,150

12
Problem 2-14

• CM / haircut? Assume barbers pay is a fixed
  cost.

13
Problem 2-14

• CM / haircut? Assume barbers pay is a fixed
  cost.
• Sales VC CM therefore 12 - 0
  12

14
Problem 2-14

• Annual BE point in of haircuts?

15
Problem 2-14

• Annual BE point in of haircuts?
• FC Barbers pay 5 x 9.9 x 40 x 50
  99,000
• Rent other 1,750 x 12
  21,000
• Total fixed costs
  120,000
• BE FC / CM per u 120,000 / 12 per haircut
• 10,000
  haircuts

16
Problem 2-14

• Income if 20,000 haircuts are sold?
• Note there are 2 ways of approaching this

17
Problem 2-14

• Income if 20,000 haircuts are sold?
• First approach
• Revenue 20,000 x 12 240,000
• Less FC 120,000
• Income 120,000

18
Problem 2-14

• Income if 20,000 haircuts are sold?
• Second approach
• Look at the of haircuts in excess of the BE
  point...

19
Problem 2-14

• Income if 20,000 haircuts are sold?
• Second approach
• Total haircuts sold
  20,000
• Less of haircuts required to BE 10,000
• of haircuts in excess of BE 10,000
• 10,000 haircuts x 12/haircut 120,000

20
Problem 2-14

• Barbers get 4/hr plus 6/haircut. What is the
  CM and annual BE point?

21
Problem 2-14

• Barbers get 4/hr plus 6/haircut. What is the
  CM and annual BE point?
• CM 12 - 6 6

22
Problem 2-14

• Barbers get 4/hr plus 6/haircut. What is the
  CM and annual BE point?
• CM 12 - 6 6
• FC Barbers pay 5 x 4 x 40 x 50 40,000
• Rent other 1,750 x 12
  21,000
• Total FC
  61,000

23
Problem 2-14

• Barbers get 4/hr plus 6/haircut. What is the
  CM and annual BE point?
• CM 12 - 6 6 per haircut
• FC Barbers pay 5 x 4 x 40 x 50 40,000
• Rent other 1,750 x 12
  21,000
• Total FC
  61,000
• BE FC / CM per u 61000 / 6 per haircut
• 10,167
  haircuts

24
Problem 2-14

• Barbers get 7 / haircut. What is the CM and
  annual BE point?

25
Problem 2-14

• Barbers get 7 / haircut. What is the CM and
  annual BE point?
• CM 12 - 7 5

26
Problem 2-14

• Barbers get 7 / haircut. What is the CM and
  annual BE point?
• CM 12 - 7 5
• FC Barbers pay 0
• Rent other 21,000
• Total fixed costs 21,000

27
Problem 2-14

• Barbers get 7 / haircut. What is the CM and
  annual BE point?
• CM 12 - 7 5
• FC Barbers pay 0
• Rent other 21,000
• Total fixed costs 21,000
• BE FC / CM per u 21,000 / 5 per haircut
• 4,200
  haircuts

28
Problem 2-14

• Using info from 5, what is the income if 20,000
  haircuts are sold?

29
Problem 2-14

• Using info from 5, what is the income if 20,000
  haircuts are sold?
• Revenue 20,000 x 12 240,000
• Less VC 20,000 x 7 140,000
• CM 100,000
• Less FC 21,000
• Income 79,000

30
Problem 2-14

• Using info from 5 Assume 20,000 haircuts sold.
  At what rate of commission would Andre earn the
  same Income as in 3?

31
Problem 2-14

• Using info from 5 Assume 20,000 haircuts sold.
  At what rate of commission would Andre earn the
  same Income as in 3?

32
Problem 2-14

• Using info from 5 Assume 20,000 haircuts sold.
  At what rate of commission would Andre earn the
  same Income as in 3?

33
Problem 2-14

• Using info from 5 Assume 20,000 haircuts sold.
  At what rate of commission would Andre earn the
  same Income as in 3?

34
Problem 2-14

• Using info from 5 Assume 20,000 haircuts sold.
  At what rate of commission would Andre earn the
  same Income as in 3?

35
Problem 2-14

• Using info from 5 Assume 20,000 haircuts sold.
  At what rate of commission would Andre earn the
  same Income as in 3?

36
Problem 2-23

• Calculate the total CM for 1996 and the CM.
  Explain why contribution margin differs from
  gross margin.

37
Problem 2-23

• Calculate the total CM for 1996 and the CM.
  Explain why contribution margin differs from
  gross margin.
• Sales
  15,968
• VC from COGS 6,526
• from Other 2,086 8,612
• Total CM 7,356

38
Problem 2-23

• Calculate the total CM for 1996 and the CM.
  Explain why contribution margin differs from
  gross margin.
• Sales
  15,968
• VC from COGS 6,526
• from Other 2,086 8,612
• Total CM 7,356
• CM CM / Sales 7,356 / 15,968 46

39
Problem 2-23

• Calculate the total CM for 1996 and the CM.
  Explain why contribution margin differs from
  gross margin.
• CM Sales VC GM Sales
  COGS

Other Expenses
Fixed Costs
COGS
Variable Costs

• If most of the expenses are variable CM
• If most of the expenses are fixed CM GM

40
Problem 2-23

• What is the operating income for 1997 if sales
  increase by 10?

41
Problem 2-23

• What is the operating income for 1997 if sales
  increase by 10?
• Sales increase 10 x 15,968 1,596.8
• Additional CM 1,596.8 x 0.46 734.5
• Operating income 1556 734.5 2,290.5
• increase in operating income 734.5 / 1556 47

42
Problem 2-23

• What assumptions were needed to calculate the
  predicted 1997 operating income in 2? (see p.
  51)
• Expenses can be classified into VC FC that
  completely describe their behavior within the
  relevant range
• Costs revenues are linear within the relevant
  range
• 1997 volume is within the relevant range
• Efficiency productivity are unchanged
• Sales mix is unchanged
• Changes in inventory levels are insignificant.