One of the fundamental tools used in managing account, profit forecasting and pricing strategies is definitely the “break-even analysis”, that can be defined as “a technique for analysing how revenue, expenses and profit vary with changes in sales volume or simply it is the analysis that enables any professional organisation to determine the break-even point”. The “break-even point” or BEP can be considered as “the point (level of production) in which a company generates the same amount of revenues and expenses during an accounting period (Revenues = Total costs). No profit and no loss have incurred. Since revenues equal expenses, the net income is zero. The company did not lose money, but it also did not gain any money either. It simply broke even during that period” (Definitions taken from …show more content…
(Definitions taken from http://www.myaccountingcourse.com/financial-ratios/contribution-margin and http://smallbusiness.chron.com/breakeven-point-mean-firm-need-achieve-breakeven-38264.html). As any other professional organisation, hotels have as main objective achieving a certain level of profitability or return on investment and the break-even analysis enables hotel managers to establish how much of any product (Guestrooms, Food & Beverage items, etc.) or service (laundry services, concierge service, etc.) must be sold in order to realise a profit (exact point above which they need to operate to ensure a profit). Furthermore, the break-even analysis assists hotel management with the pricing of their products, services, menu prices and room rates, again keeping in mind the achievement of profit. Total sales = Total costs = Zero Profit Total sales higher Total costs = Profit Total sales lower Total costs =
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.
e. In general, products that are expensive to produce tend to have higher selling prices than those that are cheaper to produce. By calculating $ 8 - ($4,000 / 1,500) = $ 5.33, it is clear that to keep the same price for all units, there will be a need to reduce the selection of the 15 types currently available to a reduced number which would include only those with an average variable cost less than $5.33.
Assume required profit is equal to selling, general and administrative expenses so after expenses they will breakeven.
BEP as an analysis which determines when total revenues equals total costs (fixed & variable). This analysis expresses the point when the organisation experiences no income or loss.
This chart shows the net revenues and net earnings for the years of 2013-2009. As you observe the net revenues have been consistent in the 18,000 for at least 3 years in a row. This is a good trend for the Kraft Food Group. The trend for the net earnings is sporadic. The net earnings is also called the bottom line. This shows the amount of money that is left over after paying all of the expenses. Kraft Food Group needs to cut down on its expenses.
The hotel industry performs within a saturated market, driven by customer loyalty and competitive pricing to stand-out. This competitive nature makes it extremely important to capitalise on strengths while improving on
The break-even point is located in the intersection between the total expense line and the revenue line. As it is shows, Cosmo-cosmetics operates at a sales Volume to the right of the break-even point (point A), this means that it would earn a profit because the revenue line lies above the expense line over this range ?Profit area?
The four techniques used for analyzing the costs and benefits of a proposed system is break-even analysis, payback analysis, cash-flow analysis, and present value analysis. Break-even analysis is a supply-side analysis. Only the costs of the sales is analyze with break-even. It does not analyze how demand may be affected at different price levels. A strength of break-even analysis it’s relatively simple concept and the formula can be easily understood and used by most people. Another strength is that it provides vital information when making a decision. Weaknesses of break-even analysis is it assumes that all output will be sold. It is difficult to apply break-even analysis when a company sells more than one product. Break-even cannot show what will definitely happen. The payback analysis method is the simplest analysis method to use when looking at one or more major project options. It tells you how long it will takes to earn back the money you will spend on the project. Payback analysis helps you decide you whether or not you should undertake the project. The biggest strength of the payback method is that it is simple. The payback analysis method is used to make quick evaluations of projects. Weaknesses of the payback method is that the method ignores the time value of money. The payback analysis method does not consider cash inflows from a project that may occur after the initial investment has been recovered. A cash flow analysis is a listing of the flows of cash into and out of the project. This is like your checking account at your bank. Deposits are the cash inflows and withdrawals are the cash outflows. The balance in your checking account is your net cash flow at a specific point in time...
(i) How much revenue will the business have to earn in order to break even in termsof business profit?
Thanks to these factors, pricing becomes one of the primary uses with which hotels attract customers. However, due to customers’ independent nature, there influence over industry players is limited. In the high-end segment of hotels, price influence becomes even less as hotels find it easier to differentiate themselves from the competition and customers become less price sensitive coming to expect higher prices as a symbolism of superior quality and services. Lastly, corporate business and tour operators can exert more influence due to their large purchases but this affect is of a limited nature and does not extend across the whole
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
In the above cited the accounting of business is use to record and measure the size of the business, in terms of gains and loss on monthly, quarterly Semi- Annual and Annual basis. Use of the accounting in business, gives a clear review of net income, helps to plan budget of the business accordingly.
The Hotel industry has become very important in the past years due to immense traveling and growth of international business. Hotel industry not only plays an important role in the life of people but as well as the economy of the country. Development and advancement in the Hotel industry have rapidly been taking place and especially since the rapid change in technology, it is very important for hotels to be promptly keeping up to date. When the hotel industry is spoken of, there are many famous hotels but one hotel company that has been outstanding in growth and other aspects of business, like in Leadership, Teamwork (Employee turnover), Motivation (Customer retention and satisfaction, Goals and objectives, (changing the way hotel business has worked), and Change within the company; structurally inside and physically outside, adding elements, like entertainment, gaming, and outdoor activities, is the Hilton Hotel Company.
However the cash surplus generated during peak period that is July to November is typically enough to meet the short fall. But this year the hotel requires major renovations in order to be continually be able to attract guests. They estimated that the renovations will cost $250000 but now it appears that $300000 of work is necessary. Also their long term group also manager has also left unexpectedly and her replacement is not as effective in obtaining business from the regional business and organization. Furthermore their revenues have also declined by 15% for January and February and advance booking are also down. Thus a cash flow forecast is made to estimate the
For example: if bhatbhateni’s inventory cost $20000 but in current scenario the cost has dropped to $16000, than the company records $16000 in its balance sheet and records $4000 difference amount as a loss in income statement. (accounting coach, 2016)