Ows C SiOp t6 Bbreak even? Car Wash has fixed costs per month of $16,800, and va
ID: 2340071 • Letter: O
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Ows C SiOp t6 Bbreak even? Car Wash has fixed costs per month of $16,800, and variable costs are 20% of sales. The averag nt collected per car washed during the past year has been $5. How many cars must be washed pe amou month to break even? 12. You have graphed the cost-volume-profit relationships for a company on a bre informed of certain assumptions. Explain how the lines on the chart would change if (a) fixed costs in creased over the entire range of activity, (b) selling price per unit decreased, and (c) variable costs per uni increased. 13. Define contribution margin. Is it best expressed as a total amount or as a per-unit amount? In what way is the term descriptive of the concept it represents? 14. Explain the approach to break-even analysis that is used for a mix of two or more products. 15. Explain how break-even formulas can provide income-planning analyses 16 In planning net income, how can (post tax) net income be incorporated into the planning formula?Explanation / Answer
Post 12 and 16 seperately.
11.Fixed cost per month =$16800
Yrly =$16800*12 =$201600
The average amount collected per car was from last year $5
Variable Cost @20% of Sales ie 20% of $5 ie $1
Therefore Contribution =$4
Break even car wahses =$201600/$4=50400
13.The amount of sales revenue remained after the variable costs are incurred is called contribution margin. In other words, contribution margin is the surplus amount of revenue over variable costs.
The contribution margin reports the revenue available to pay off fixed costs. The amount of revenue available after the fixed costs are paid off is the income or profit earned.
The following is the formula to calculate the contribution margin:
Contribution Margin = Sales Variable cost
Contribution margin is the excess sales amount used to pay off fixed costs. Since fixed costs are indifferent to various production levels and variable costs change with production levels, contribution margin is used to measure the efficiency of a company in maintaining low variable costs.
Contribution margin can be evaluated in three forms: In total, per unit, and as a ratio. The total contribution margin can be evaluated as total sales minus total variable costs. Per unit contribution margin can be evaluated as per unit selling price minus per unit variable cost. Contribution margin ratio can be evaluated as contribution margin (selling price minus variable costs) to selling price.
Contribution margin (contribution margin per unit and contribution margin ratio) is used to compute breakeven sales (in units and in dollars), which is the main concept of Cost-Volume-Profit (CVP) analysis. Breakeven sales is the point of sale at which the company not generate any profit or loss.
14.The procedure of computing break-even point of a multi product company is a little more complicated than that of a single product company becuase it involves a range of products to calculate the composite contribution margin.
Here we must know the sales percentage of individual products in the total sales mix. This information is used in computing weighted average selling price and weighted average variable expenses.
In the above formula, the weighted average selling price is worked out as follows:
(Sale price of product A × Sales percentage of product A) + (Sale price of product B × Sale percentage of product B) + (Sale price of product C × Sales percentage of product C)
and the weighted average variable expenses are worked out as follows:
(Variable expenses of product A × Sales percentage of product A) + (Variable expenses of product B × Variable expenses of product B) + (Variable expenses of product C × Sales percentage of product C)
15.The break-even point helps business owners determine when they'll begin to turn a profit and assists them with the pricing of their products as it helps in planning the profitability of the organisation. Typical variable and fixed costs differ widely among industries. This is why comparison of break-even points is generally most meaningful among companies within the same industry, and the definition of a "high" or "low" break-even point should be made within this context.
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