In the breakeven process, there are to costs involved;
• Variable
• Fixed
Variable costs, are costs that can be reduced for example, electrical and gas costs are variable cost because the price is fluctuating all the time, it is not set to the same amount because it changes due to energy consumption made by the business.
Fixed costs on the other hand, are costs that cannot be changed within a business, they tend to stay same and are always present. These include rent/mortgage of the premises the business is based at, wages that are paid to employees who work for the business etc.
Below is the working out of what the break-even point will be if the sandwich price rises from £2.50 to £3.65 along with the current break-even point (easy to compare
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Discuss the impact of rising costs on the break even
Rising costs means an increase in expenditure of a business such as fixed cost and variable cost.
If the total costs of a business start to rise, then it means that the breakeven point will be much further as then the business will need to sell more in order to at least cover its costs before it starts to generate profits.
Rising costs could also have an impact on the selling price of a product. If costs have risen within a business, then it means that the business will need to sell more units in order to cover its costs, however, if business increases selling price, then it also means that the business could be susceptible to loss of customers.
Discuss what can be done to counter a rising break-even point.
If the business identifies that the break-even point is rising, then the business will need to carefully decide on actions to take in order to lower the break-even
Fixed expenses are those that will be there everyday the lodge is open regardless of the number of skiers. The Lodge is open 200 days per year and the cost of running the new lift is $500 per day for the entire 200 days giving us $100,000 in fixed costs. Variable costs are the expenses based on the number of customers. There is an additional $5 expense per skier per day associated with the new lift. If there are 300 skiers multiplied by $5 each multiplied by the 40 days that they are expected to be on the lift, we will have $60,000 in variable expenses.
Table C projects the break even analysis in both units and dollars as a basis for further projections. As seen in Table C substantially larger sales are required to break even.
Rocket-Blast, LLC, a beverage maker, has seen its profit margins reduced which presents a real problem for the company going forward (Precord & Macdonald, nd). Management has decided that operating costs must be reduced in order to increase profit margins to
Variable costs, for a manufacturing company, are those costs that increase or decrease as production increases or decreases. If production increases, then variable costs will increase; if production decreases, variable costs will decrease. For Claire’s Antiques, examples of their variable costs would be manufacturing labor, raw materials, and manufacturing overhead. Examples of manufacturing overhead would be the utilities that are used in the production facility, and the oils and lubricants used in the machinery. Fixed costs in a manufacturing company are those costs that remain constant regardless of the level of production. Examples of fixed costs for Claire’s Antiques are: sales and administrative costs, rent and/or mortgage on the production facility, and depreciation. Semi-variable, or mixed, costs are costs that have both fixed and variable costs. An example of a semi-variable cost could be if Claire’s leases their delivery trucks, and the lease includes a mileage fee. The monthly lease would be considered a fixed costs, but the mileage fee would be a variable cost. (Hofstrand, 2007). In most cases, fixed costs are usually higher than variable costs, and can absorb a great deal of profits. Because of this, some companies may consider converting their fixed costs to variable costs.
...The three key learning points that are identified are breakeven, variable cost, and fixed cost will be of importance in the decision making because Mr. Shultz needs to know how many items he must sell before he can see the profits of each store. Variable cost is important because cost affect profitability and details the management strategies to enhance profits. Finally fixed costs are important because it must be paid irrespective of sales volumes. Fixed costs include, but are not limited to, overheads (rent, insurance, and such) but can include direct costs such as payroll. The overall importance of breakeven, variable cost and fixed cost are equally important to any business decision making.
Flooring contractors have a mix of variable costs and fixed costs in their operations, with the variable costs being the vast majority. Fixed costs include the following: cost of vehicles, cost of equipment, cost of facilities, and cost of insurance. Contractors will pass fixed costs on to the customers by usually adding anywhere from $1 to $2 to the cost of installation per square foot. Everything else is variable, because what they charge depends on the number and types of jobs the contractor performs, and the labor and materials required.
Dusenberry to perform a break-even analysis (p. 431) to determine how much revenue her business must earn to equally offset its expenses, I do not believe this analysis is going to be the key to turning her organization around. As mentioned, profits will not pay a business’s obligations. Just because an organization has determined the amount of revenue they must earn to reach the break-even point, does not mean that have affected their organization’s cash flow. As our text states, “Approximately 55 percent of small businesses that fail do so because of cash flow problems with an immediate impact, not because of lack of profitability” (p. 453). If The Curious Sofa has reached the point where it is unable to pay its obligations, a break-even analysis is not going to help; the organization must find ways to increase the amount of cash coming into the business.
Variable costs: “Variable costs are costs that vary with the volume of activity”2 and they are: direct labor, Materials, Material spoilage & direct department expenses.
Direct fixed costs result from any resource in the practice that is specifically involved in the delivery of the service, but the cost that is not directly related with volume of service delivered. With the pharmacy division of CVS focusing on prescriptions, the most substantial direct fixed cost of dispensing a prescription is personnel cost, especially the cost of the pharmacist. This typically represents about 50% of the cost of dispensing a prescription. Since the pharmacy staff that is scheduled to work on a particular day, this causes the cost of the practice to remain the same regardless of whether an additional prescription is dispensed that day. Their wages and benefits are also considered fixed costs for the corporation.
The average cost maintains the full cost of the objective divided by the number of units of provided service while the marginal cost refer to the additional cost incurred as a result of providing one more service unit (Finkler et al., 2013). The fixed cost refrains from changing based on changes in volume of service units while variable cost, on the opposite end, varies in cost based on changes in volume of service units (Finkler et al.,
...trospective revenue of the company, rendering a price floor incapable of increasing revenue, which is the goal from the beginning.
Every company has some kind of Revenue and they all have costs that are associated with running the company. It is also true that if a company wants to increase their Revenue, their costs will increase too. It is every company’s goal to maximize revenue and either through Production or Services, and minimize cost. These things are easy to figure out, but actually identifying the production and figuring out how it will increase or decrease with change is very difficult.
To breakeven, we would have to sell 267,857 units. We plan on selling the Galaxy Note 8 at a price of $499 which is cheaper than our previous phones in the Galaxy Note line. Consumers aren’t going to purchase a new smartphone if the price is going to be in the same range of the Galaxy Note 7. So we are going to be selling the smartphone at a discount. We are using odd-even pricing for the Samsung Galaxy Note 8. It gives a sense to the consumer that they will be purchasing the Samsung Galaxy Note 8 at a bargain, instead of using the even pricing method. The cost to make the smartphone itself is around $275. There will be a picture below that will explain the details of the build of the smart phone. For the breakeven I subtracted the Total Cost from the Total Revenue. The profit for year 1 will be $1 billion dollars, I subtracted the total revenue for year 1, which was $1.06 billion and subtracted that number by the fixed cost amount of $60
The first way is achieving a high turnover in service for example a restaurant that turns tables around very quickly, or an airline that turns around flights very fast. This approach means fixed costs are spread over a larger number of units of the product or service. This will result in a lower unit cost. Large businesses do this to create an entry barrier to prevent potential competitors from competing with their product. As they are unable to match the scale necessary to match the large firms low costs and prices.
Some fixed costs are depreciation, interest, insurance, & fees. Some variable costs are gasoline, tires, and maintenance on the vehicle. “The largest fixed expense associated with a new automobile is depreciation, the loss in the vehicle’s value due to time and use”(Kapoor, Dlabay & Hughes, 2012). An automobile purchases price might be cheap but when factoring in the fixed and variable cost the automobile could possibly cost more than expected. Websites like Intellichoice.com can help research and compare vehicle costs. This website shows the shopper how much it cost to own the vehicle for 5 years. When researching a vehicle to purchase it is important to consider these costs in order to make a good