3. Cost-Volume-Profit Analysis

1. 3. Cost-Volume-Profit Analysis Hanif Kanjer Dean, Rustomjee Business School

2. Index • Contribution Margin • Contribution margin per unit • Contribution margin % • Profit-Volume Graphs • Break-even Analysis • Margin of Safety • Sensitivity Analysis • Solved Examples

3. E.g. 3-20, Pg 112 Contribution & Operating Income Break-even point in Revenues Break-even point in units The Doral Company manufactures and sells pens. Sales: 5,000,000 units @ $0.50per unit. Fixed costs $900,000/yr Variable costs are $0.30/yr

4. E.g. 3-20, Pg 112

5. E.g. 3-20, Pg 112

6. Delicious Donuts - 1 E.g. 3-19, Page 112,

7. E.g. 3-19, Page 112 Delicious Donuts - 2

8. Break-even Point E.g. 3-21, Pg 112 Sanborn Motors is a small-car dealership.Sells a car for $29,000 per monthPurchases the car for $25,000 per monthPays $65,000 in rent & utilities, $75,000 for sales people’s salaries.Sales people are paid a commission of $600 per car they sell.Sanborn spends $12,000 each month for local advertising.Its tax rate is 25%Find the Break-even point

9. Break-even Point and income taxes E.g. 3-21, Pg 112 To achieve a target monthly net income of $69,000, how many cars should be sold? Total Amount 1,027,000 302.06 935,000 92,000 23,000 69,000 302.06

10. Break-even Analysis

11. Break-even Graph