1 / 18

Financial and Cost Volume Profit Models (cont’d)

Financial and Cost Volume Profit Models (cont’d). Class Announcements. See SCC for information on information sessions Assignment #1 due September 19th (today) Assignment #2 due September 26 th (available on-line) Business Society Golf Tournament (Daily Schwartz on Facebook)

cliff
Download Presentation

Financial and Cost Volume Profit Models (cont’d)

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Financial and Cost Volume Profit Models (cont’d)

  2. Class Announcements • See SCC for information on information sessions • Assignment #1 due September 19th (today) • Assignment #2 due September 26th (available on-line) • Business Society Golf Tournament (Daily Schwartz on Facebook) • Date: Saturday Sept 21st (Colin MacInnis, at x2010qbn) • Time: tee off times begin at 12:00pm • Location: Antigonish Golf & Country Club (87 Cloverville road) • Team size: 4 • Fee: $50/team member • Bloomberg Apptitude Test (BAP) • Info Session: Thursday September 19th in SCHW 205 at 5:15pm • Session: Friday September 27th at 10am in SCHW 252 (Free) • Contact: Campus Ambassador, Jake Baker atx2011cqv@stfx.ca

  3. Class Objectives • Cost Volume Profit (CVP) analysis as a simplistic but powerful form of financial modeling • The application of Cost Volume Profit (CVP) analysis to a context: Cloudwalkers

  4. Financial Models: CVP Analysis • Cost-Volume-Profit (CVP) analysis is the study of the effect of output volume on revenue, expense and net income • Managers use CVP analysis to try and obtain the most profitable combination of variable and fixed costs • Computers allow the manager to use a CVP modeling program to extensively and at minimal cost analyze relationships and to remove simplistic assumptions

  5. Financial Modeling: Sensitivity Analysis • CVP provides structure to answer a variety of “what-if” scenarios. • “What” happens to profit “if”: • Change in Fixed costs: • Changes in fixed expenses cause changes in the break-even point • If all else is the same the break-even will change at the same percentage as fixed costs change • Change in Selling Price • Change in Variable Costs • Change in Sales Mix

  6. Case: Cloudwalkers • Who: Rick Fodemesi, • Director and son of founder • What: 20,000 footwear order Sears • Why: Agree on price; • $23.75 wholesale vs. $15 to $18 • When: a few weeks, meeting scheduled

  7. Cloudwalkers: Company • Business began with footwear for people with sore feet • Expanded into footwear for women • Rick joined his Father after education in UWO • Manufacturing and retail sales operate in same building • Two product lines: • Cloudwalkers – casual sandal • Reactivators – dress sandal

  8. Cloudwalkers: Production • Current production • 3,000 pairs • Capacity • 26,000 pairs (500 x 52 weeks) • Additional Volume (Sears) • 20,000 pairs • Fixed costs • $9,000 (3000 @ $3) • Not easily traceable as wholesale and retail facilities are closely related • O/H includes: repair, maintenance, depreciation, rent, utilities • Additional Volume Fixed Costs • $700 (dye)

  9. Cloudwalkers: Costs

  10. Cloudwalkers: Profit (Status Quo)

  11. Cloudwalkers: CVP (Sears)

  12. Cloudwalkers: Sensitivity Analysis (Sears)

  13. Cloudwalkers: Qualitative • Sears is a large customer & would increase volume • From 3000 to 23,000 (20,000) • Eggs in one basket (90% of capacity to one customer) • Effect on other customers • Capacity limitation – could handle year 1 but not more than 23,000 pairs • Availability of labor pool • Son is younger and maybe more risk raking

  14. Cloudwalkers: Qualitative (Cont’d) • Availability of direct materials (e.g. soles from German suppliers were not received on a timely basis) • Sales target reasonability (i.e.. 20,000 hi/lo) • Any financing of increased direct materials and labor • How flexible is Cloudwalkers production process (i.e., can they meet an uneven demand requests)?

  15. Class Objectives • Cost Volume Profit (CVP) analysis as a simplistic but powerful form of financial modeling • The application of Cost Volume Profit (CVP) analysis to a context: Cloudwalkers

  16. Cost of an Egg: The Egg • Eggs offer egg-ceptional nutrition. Eggs are unique in that they contain nearly every nutrient known to be essential to humans.. • Eggs are one of nature's most nutritious foods. One large egg contains only 70 calories and an incredible amount of nutrition. • http://eggs.ca/egg-nutrition/whats-in-an-egg • Eggs resemble submarine hulls and are among the strongest things known to the human race.  Eggs are cylinders with arch-shaped ends, making them exceptionally strong. Try breaking one squeezing it end-to-end.

  17. Cost of an Egg Assignment • Due: November 28th • Worth: 10% • Format: Report form, 3 p. Maximum, single spaced, individual assignment, ID# only • Costs of egg production and delivery – the cost of an egg • Types of Costs of production, maintenance, delivery • Allocation of costs • Impact of regulation on costs and profitability • Cost management and cost efficiency • Resources: • Nova Scotia Egg Producers http://www.nsegg.ca/ • Egg Farmers of Canada http://eggs.ca/ • Nova Scotia Egg Producers’ Egg Regulations http://www.gov.ns.ca/just/regulations/regs/npeggreg.htm • Nova Scotia Department of Agriculture http://www.gov.ns.ca/agri/industry/poultry.shtml

More Related