Break-even Analysis
Not what you're looking for?
1. What is the breakeven point for the KDJ Inn?
2. If the fixed cost lease is traded for a variable lease of 20 percent of total sales, what is the revised breakeven point for the KDJ Inn?
3. If (independent of #2) the variable costs increase by 10 percent, by what percentage must sales increase in order for the KDJ Inn to earn its net income of $225,000?
4. If (independent of #2 and #3) the KDJ Inn is to earn net income of $300,000, what must its room sales equal? (Assume that the sales mix remains constant.)
1. What is the food department's CMR?
2. What is the weighted average CMR for ECDR?
3. What is the breakeven point?
4. The Casses wish to increase net income by $30,000 and feel this can be done by increasing room sales only. Determine the necessary increase in room sales to meet this requirement.
5. Assume (independent of #4) that revenue from the stables can be increased, but only with a $500 increase in advertising (a fixed cost) for brochures to go in each room. What level of sales from the stables must be generated to cover this cost?
6. Assume that the brochures mentioned in #5 are used as a direct mailing. The cost would now be $1,500 to cover printing and mailing, but sales for each department would increase. Assuming that room sales, food sales, and stable revenue remain at a ratio of 5 to
2 to .05, how much must revenues increase for net income to remain constant?
See attached file for full problem description.
Purchase this Solution
Solution Summary
This solution looks at accounting break even questions: changes in fixed cost to variable cost lease, increases in net income.
Solution Preview
Please see the attached file.
Problem 14
1.
The contribution margin = $1,300,000/$2,000,000 = 65%. Variable costs are $700,000/$2,000,000 = 35% of revenues.
The breakeven point occurs when the profit (net income) = 0. Since income taxes are calculated as a percentage of pretax income (income taxes = 25% of pretax income) the breakeven point also occurs when the pretax income = 0 (and thus taxes = 0 and net income = 0).
From this we can conclude that contribution margin - fixed costs = 0 contribution margin = fixed costs. Since the fixed costs are $1,000,000 we thus need to have a contribution margin of $1,000,000. The revenue level to create a contribution margin of $1,000,000 is $1,000,000/0.65 = $1,538,462.
Revenues $1,538,462
Variable Costs $ 538,462 (35% of $1,538,462)
Contribution Margin $1,000,000
Fixed Costs $1,000,000
Pretax income $ 0
Income Taxes $ 0 (25% of $0)
Net ...
Purchase this Solution
Free BrainMass Quizzes
Production and cost theory
Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.
Business Ethics Awareness Strategy
This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.
Motivation
This tests some key elements of major motivation theories.
Social Media: Pinterest
This quiz introduces basic concepts of Pinterest social media
Lean your Process
This quiz will help you understand the basic concepts of Lean.