Financial planning and control - COMPUTATIONS

Question 1

Write the break-even formula.

Answer 1

BE in units = (fixed costs)/(contribution margin per unit)

The break-even point expressed in total revenue rather than units is computed by dividing the fixed costs by the contribution margin ratio

Question 2

Contribution margin formula

Answer 2

Revenue - variable costs = contribution margin (CM)

Question 3

Target profit computation

Answer 3

BE in units = (Fixed costs + Target profit) / (Contribution margin)

Question 4

Target profit with taxes computations

Answer 4

1. FIRST Before-tax target income =
   Average daily profit AFTER taxes = (1 - Taxes)Y
2. THEN
   BE in units = (Fixed costs + Target profit (or Average daily profit AFTER taxes) / (Contribution margin)

Question 5

Break-even in total/multiple units computation

Answer 5

Break-even in units = (fixed costs) / (weighted average contribution margin)

Question 6

Net income/profit computation

Answer 6

Y = (NP) - (NV) - F

Y = profit/net income
N = number of units
P = price per unit
V = variable cost per unit
F = fixed costs

Question 7

Price per unit computation

Answer 7

P = ((Y) + (NxV) + F) / N

Y = profit/net income
N = number of units
P = price per unit
V = variable cost per unit
F = fixed costs

Question 8

Weighted average contribution margin via ratio of 1:2:3
CMa = $2
CMb = $4
CMc = $6

Answer 8

($CMa1) + ($CMb2) + ($CMc3) = $CM / (1+2+3)
($21) + ($42) + ($63) = $CM / (1+2+3)
$(2 + 8 + 18) / (6)
= $4.67

Question 9

Target profit analysis formula with after-tax profit to fixed costs
Ex: Fixed cost = $10,000
Revenue per unit = $18
Variable costs =$13 per unit
Tax rate 30%
Desires after tax profit = $3,500

Answer 9

sales target in units =
$3,500 = 0.7Y
Y = $5,000

sales target in units =
($10,000 + $5,000) / ($18 - $13) = 3,000 units

Question 10

Multiproduct CVP analysis with common fixed costs
Common fixed costs = $34,000
Three services provided in ratio of 1:3:6
Contribution margins are $20, $30, and $10, respectively

Weighted average contribution margin?
Total number of units of sales at break even?
Number of units for each of the three products?

Answer 10

Weighted average contribution margin =
($20x1 + $30x3 + $10x6)/10 = $170/10 = $17

Total number of units of sales at break-even is
$34,000/$17 = 2,000 total units

The numbers of units for each of the three products are
2,000(1/10) = 200 units;
2,000(3/10) = 600 units;
2,000*(6/10) = 1,200 units