Operating profit is described as, “the total revenues from operations minus cost of goods sold and operating costs (excluding interest expenses and income taxes)”. (Horngren, Datar and Rajan, 2015. p.54). Generally speaking, the higher the figure a company produces on operating profit, the better off the business will turn out to be. This is all about strategy and is primarily because a business will have less financial risk if it had a higher operating profit than one who produces less. (Horngren, Datar and Rajan, 2015. p.657). Out of all the scenarios, the best option for Crooked Creek Wines to consider is option (b) where the operating profit totalled to the highest figure out of all, which was $105 750. This was as a result from increasing their average daily revenue to $800 compared to $750 making it a …show more content…
Generally speaking, the higher the contribution margin the lower the breakeven point will be. Conversely, the lower the contribution margin is, the higher you will the breakeven point to be. The purpose of this, is to find the fixed cost and breakeven point. (Horngren, Datar and Rajan, 2015. p. 137). The contribution margin has a big impact on where the breakeven point lies. It was found that when you have more than one product we need to find the weighted average for each product in order to determine a decision. (Horngren, Datar and Rajan, 2015. p. 149). The variable costs are costs that are able to change depending on the level of output and fixed costs will not change whether or not the company produced 1 or 100 products. (Horngren, Datar and Rajan, 2015. p. 42, 55). In this situation, we had to combine the product of standard bread with the gluten free bread ang figure out a percentage of how we should split up the two. It was found that 81% of standard bread should be made and 19% of gluten free bread should be created in order to achieve
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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.
Costs are frequently fixed and direct with detail to a given product. A sample is the salary of a product manager with duty for only one product. Product manager’s salary is a fixed cost to the company for a wide range of production volume levels. If the company drops the product completely, the product manager is no longer wanted.
But there are many factors that limit the volume of output of a firm, such as market demand for the product, non-availability of a specific raw material, availability of labour hours and machine hours etc. These limiting factors are called ‘Key Factor’. In such situation it is not enough to compute the contribution but contribution for each unit of key factor is required to be calculated. The total contribution for the limiting factor must recover the fixed cost. Further contribution per limiting factor helps in the product-mix decision. In order to maximise profits that product which gives highest contribution per limiting factor should be produced to the maximum possible level keeping in mind the market demand and firm’s capacity to produce. The quantity of production of other products should be determined in the same
Net profit is obtained when operating expenses, interest and taxes are subtracted from the gross profit. Net profit margin ratio established a relationship between net profit and sales and indicates management's efficiency in manufacturing, administering and selling products.
Calculating the right price for a product can be difficult, mostly because it will affect Calibrated’s bottom line. Increasing the price of a product to maximize profit can induce several risks to a company. For example, making a change to the fixed or variable costs, the number of units sold will have an impact on the company’s profitability. Increasing the unit cost of a product and decreasing the number of units sold will have a negative impact on the
Costs, revenue and breaking even INTRODUCTION In this part of the coursework I will be looking at costs, revenue and breaking even. To do this we will have to work out our fixed costs, variable costs, expected total revenue, the amount of cars needed to break even and whether we make a profit or loss. A Business Plan Material and Equipment Fixed costs All of these materials and supplies will be bought from a local D.I.Y shop. * 4 sponges incl. 1 revolving sponge: - £32 * 4 buckets: - £10 * 4 scrubbing brushes for wheels: - £4 * Advertising Leaflets: - £5 * 4 chamois leather: - £12 Total fixed costs: - £63 Variable costs The washing up liquid can be bought from any local shop, but the water will be supplied from each of us from our homes although we wont be actually paying for the water it is included for business purposes.
The assumption that we have made about fixed and variable costs is key to the price setting process. To demonstrate this fact, suppose that we had overestimated our variable costs to be $1.00 per dozen. This would lead us to seek the maximum of the new equation P=(p-1)(60-6p), which would in turn lead us to the erroneous conclusion that the price should be set at $5.50 per dozen. Similarly, the underestimation of variable costs at $.40 would have led us to set a price of $5.20.
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
Signode Industries Inc. - Providing Packaging Solutions Executive Summary SIGNODE INDUSTRY: DILEMMA AT HAND: Mr. Gary Reed, President of Signode Industries packaging division, is in a dilemma as what he should be his course of action to meet the 6.8% increase in price of cold rolled steel- the raw material used in manufacture of Signode’s primary product, steel strapping. There are few options given in the case: Increase Signode’s strapping prices to offset the increased price of cold – rolled steel. Maintain Signode’s current book prices as increasing prices would affect sales force morale. Introduce price-flex model as proposed by Jack Davis i.e. a kind of selective discounting or premium charging for customized services. Recommendations Reason: (All data in accordance to 1983) In accordance to Exhibit 1: Sales of Packaging Division of the company = $285,950 In accordance to Table A: Sales of Apex = 33.3% of $285,950 Sales of BBM = 26.8% of $285,950 Sales of HDM = 33.4% of $285,950 Sales of Customized Products = 6.5% of $285,950 In accordance to Exhibit 4: Similarly, For Apex: As it has a capacity utilization of 71% now, Suppose a sale is $100. Then contribution is $39.15 Therefore variable cost is $60.85. Now if we increase the capacity utilization to 100%, Sales becomes $ 141 since production increases by [(100-71)/71] * 100 = 41% Variable Cost = 141% of 60.85 = $85.8 Fixed Cost = 69.38% * 12.3 = $8.53 Total Cost = 85.8+8.53 = $94.33 EBIT = Sales – Variable cost – Fixed Cost = $46.67 % of EBIT = [(46.67/141) * 100] = 33.09% Suppose the company sales 100x units, the total cost was 69.38. Thus per unit cost was .6938. Now the company sells 141x units, the total cost...
In the other words, this determine whether need to include the fixed overheads in decision making for example, inventory valuation. In inventory valuation, the marginal costing value inventory at a total variable production cost. Therefore, to carry the unreasonable fixed overheads from one accounting period to the following is impossible. However, the value of inventory is understated under the marginal costing. While look into the absorption costing values inventory at full production cost and the closing stock which relating to the fixed cost will bring forward to the following year. Similarly, the fixed cost which related to an opening stock will be charged to the current year despite to the last