I need a long explanation (world document)about short term decision analysise(step by step).e.g.break-even, contribution, CPV, limiting factors, relevant cost etc. I need to understand so please include a good example(restaurant,)in Ecxel document as well.
I will greatly approciate it!!!© BrainMass Inc. brainmass.com June 23, 2018, 7:43 pm ad1c9bdddf
I need a long explanation (world document)about short term decision analysise(step by step).e.g. break-even, contribution, CPV, limiting factors, relevant cost etc. I need to understand so please include a good example(restaurant,)in Ecxel document as well.
The contribution margin is computed by subtracting total variable expenses from total revenues, or by subtracting per-unit variable expenses from per-unit revenues. The contribution margin ratio is the contribution margin divided by revenue; this ratio can be computed on either a total amount or a per unit amount.
The contribution margin is used in business to see the total amount that can be used to cover fixed expenses and earn a profit. And, the contribution margin ratio is used to see what portion (percentage) of each sales dollar is available to cover fixed expenses and earn a profit.
Contribution margin is the difference between revenues and total variable expenses. It can be expressed in total dollars or on a percentage basis, called contribution margin ratio.
The contribution margin is very useful in preparing pro-forma income statements, in preparing target net income statements, and in breakeven computations. Identifying potential expenses as either fixed or variable when identified with revenue allows easier "what if" types of analysis. Thus, the contribution margin approach to income determination is useful in simplifying the information to make better and more informed decisions concerning a future business. An example is as follows:
Contribution Income Statement
Month Ended September 30, 2000
Variable Expenses 16,200
Contribution Margin $10,800
Fixed Expenses 8,000
Net Income $ 2,800
College Pizza delivers pizzas to the dormitories and apartments near a major state university. The company's annual fixed expenses are $40,000. The sales price of a pizza is $10, and it costs the company $5 to make and deliver each pizza. (In the following exercises, ignore income taxes).
1. Using the contribution-margin approach, compute the company's break even point in units (pizzas).
Break even Point=
= Fixed expenses/ (Contribution Margin per unit)
2. What is the contribution-margin ratio?
3. Compute the break-even sales revenue. Use the contribution-margin ration in your calculation.
= Fixed expenses/ (Contribution Margin Ratio)
4. How many pizzas must the company sell to earn a target net profit of $65,000: Use the equation method.
Total revenue= Total cost + Profit
Let the quantity be x
This explains the concepts such as Break-even point, Contribution, CVP, limiting factors, relevant cost supported by practical and easy examples