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Problem 213

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Title: 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.
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