İŞLETME FİNANSI I

The sales price per unit is also constant, it does not change over time.

One of the component of the CVP equation is operating profit, not net profit

The difference between the sale price per unit and the variable costs per unit gives the unit contribution margin

Break-even point=5,250,000/(250-100)=37,500 units

First we need to calculate contribution margin ratio as:

($2-$1.2)/$2=0.4

Then we need to divide total fixed cost by contribution margin ratio as:

$50,000/0.4=$125,000

First we need to calculate margin of safety in dollars as:

$820,000-$615,000=$205,000

Then we need to divide it by expected sales to find margin of safety ratio as follows:

$205,000/$820,000=25%

Break-even point: $150,000/($10-$5) = 30,000

Break even sales: 30,000*$7 = $210,000

The variable costs directly change in proportion to the level of activity while the fixed costs are the same within a specific activity range.

Break-even point = Fixed cost / (Price - Variable cost)

= $540,000 / ($15 - $9) = 90,000

Price per unit = $400,000 / 20,000 = $20

Contribution margin per unit=Price - VC /Price

= $20 - $10 / $20 = 0.5

Contribution margin ratio of the company: (0.60*0.50)+(0.40*0.60) = 0.54

Overall break-even sales: $540,000/0.54 = $1,000,000

Break-even sales for gloves: $1,000,000*0.60 = $600,000

$300,000 - ($10 * $12) = $180,000

$180,000 / $300,000 = 0.6

The margin of safety is the cushion amount that the actual or budgeted sales can drop by, still enabling the business to break even. It is the difference between actual/budgeted sales and the break-even sales. The margin of safety can be stated in units, dollars or in a ratio form.

The degree of operating leverage is a concept widely used to assess the operating risk of a business stemming from its cost structure. Basically, the degree of operating leverage shows how much the operating income of the business changes with a relative change in its sales. In fact it is a multiple depicting how many times the operating income of a business changes in relation to a percentage change in the sales.

Degree of OperatingLeverage(DOL) = %ΔEBIT / %ΔSales

DOL = ($20 - $8) * 1,000 / [($20 - $8) * 1,000 -$4,000] = 1,5

The degree of total leverage shows the combined effects of operating leverage and financial leverage on a company’s earnings. Hence, DTL measures the sensitivity in the EPS relative to a percentage variation in the sales revenue. Operating leverage is an indicator of business risk and financial leverage is a measure of financial risk. Therefore, total leverage indicates the combined effects of the cost structure and capital structure of a firm on its net profit. Degree of total leverage is the product of DOL and DFL.

Depreciation expense is deducted from the total fixed costs not variable costs in cash break even calculation.

Cash break even(q)=(500,000-75,000)/(40-15)=17,000

The cvp analysis is based on variable costing

DFL=2,500,000/(2,500,000-500,000)=1.25