İŞLETME FİNANSI I

The variable costs directly change in proportion to the level of activity while the fixed costs are the same within a specific activity range. The unit variable costs are constant at different levels of activity. On the other hand, the unit fixed cost decreases as the level of activity increases and is minimized at full capacity production.

Goldstar Inc. DFL = $4,000,000 $4.000,000 -$500,000 = 1.142

Blackline Corp. DFL = $4,000,000 $4,000,000 -$1,750,000 = 1.777

Hakan DOL = 20% 10% = 2

Hasan DOL = ($2,500,000 -$1,250,000)/($2,500,000 -$1,250,000 -$500,000) = 1.67

Break - even point = $420,000 $24 -$10 = 30,000units

Selex DOL = 20% 10% = 2

Medex DOL = $2,500,000 -$1,250,000 $2,500,000 -$1,250,000 -$500,000 = 1.67

Change in the operating income of Selex = 2*15% = 30%

Change in the operating income of Medex = 1.67*15% = 25.05%

$200,000

P*Q = VC*Q+FC+Operating Profit where P is the sales price per unit, Q is the quantity produced and sold, VC is the variable cost per unit and FC is the total fixed costs.

The difference between the sales revenue and the total variable costs is named as the contribution margin

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.

The contribution margin ratio is the division of the unit contribution margin by the sales price per unit.

The CVP analysis is based upon the following assumptions:
1. The sales price per unit is constant,
2. Variable costs per unit and fixed costs are constant,
3. The firm sells all units produced,
4. The cost structure is constant meaning that costs change only by the level of activity,
5. If there is more than one product produced and sold, the sales mix of these products is constant.
6. Costs and revenues remain constant within a specified production level, which is usually called as the relevant range.

P*Q = VC*Q+FC+Operating Profit
where P is the sales price per unit, Q is the quantity produced and sold, VC is the variable cost per unit
and FC is the total fixed costs. As can be seen from the above equation the sales revenue is the product of the sales price per unit and the quantity sold. The sales revenue equals the variable costs of the products plus the total fixed costs and the operating profit. At a zero profit the break-even point is calculated which shows the quantity required to be produced and sold to cover up all the fixed and variable costs of the business.

The difference between the sales revenue and the total variable costs is named as the contribution margin. The difference between the sales price per unit and the variable costs per unit gives the unit contribution margin. At the break-even point the contribution margin equals the total fixed costs. The unit contribution margin calculation enhances the management to decide for efficient capacity allocations.

Break-even point= 300.000/(20-5)=20.000

Margin of Safety($) = Actual/Budgeted Sales($)-Break-even Sales($)

950.000-700.000=250.000

Costs and revenues remain constant within a specified production level, which is usually called as the relevant range.Therefore, the statement in option E is not one of the assumptions that CVP analysis is based upon. The corrext answer is E.

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.

CVP is Cost-Volume-Profit Analysis. In the business world, managers evaluate firm performance by conducting detailed financial analyses and cost-volume-profit analysis is one of the major tools of financial performance measurement. The correct answer is E.

The contribution margin shows the amount of income generated to cover up the total fixed costs and earn the targeted profit. The correct answer is B.

A variable cost is a corporate expense that changes in proportion with production output.Variable costs  increase or decrease depending on a company’s production volume; they rise as production increases and fall as production decreases.A fixed cost is an expense or cost that does not change with an increase or decrease in the number of goods or services produced or sold. Fixed costs are expenses that have to be paid by a company, independent of any business activity. Therefore, the correct answer is D.