1 / 11

SIMPLE CONTRIBUTION MARGIN ON ONE UNIT SALE A CAN OF SODA

SIMPLE CONTRIBUTION MARGIN ON ONE UNIT SALE A CAN OF SODA. Selling price for one can of soda $ 1.00 Cost of Goods Sold (direct cost of the product/service) Average cost of a can of soda $ .50 Average shipping/distribution cost per unit $ .06 TOTAL COGS $ .56

speranza
Download Presentation

SIMPLE CONTRIBUTION MARGIN ON ONE UNIT SALE A CAN OF SODA

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. SIMPLE CONTRIBUTION MARGIN ON ONE UNIT SALE A CAN OF SODA Selling price for one can of soda $1.00 Cost of Goods Sold(direct cost of the product/service) Average cost of a can of soda $ .50 Average shipping/distribution cost per unit $ .06 TOTAL COGS $ .56 GROSS PROFIT PER CAN $ .44 Less: Other variable costs $ .00 NET CONTRIBUTION MARGIN (AFTER ALL DIRECT COSTS)$ .44

  2. BREAK-EVEN POINT FOR SODA VENDING BUSINESSSCHOOL OF BUSINESS AGREEMENT Agreement with School of Business to locate a soda vending machine in Chan Shun Hall. School of Business wants 25% of the gross profit per can in exchange for giving you the exclusive vending rights to their building. QUESTION: What is your break-even point if the initial contribution margin is $.44/can? YOUR FIXED COSTS: Rent on Vending Machine $ 50/mo TOTAL MONTHLY FIXED COSTS = $ 50/mo GROSS PROFIT PER SODA = $ .44 LESS: OTHER VARIABLE COSTS (25% of gross profit per can paid to School of Business) $ - .11 NET CONTRIBUTION MARGIN $ .33 BREAK-EVEN POINT = Fixed Costs/Net Contribution Margin = $ 50/.33 = 151.5 cans of soda per month

  3. SODA VENDING BUSINESS – 200 cans/moSCHOOL OF BUSINESS AGREEMENT If you expect to sell about 200 cans of soda per month, what profits do you expect? Cost of Goods Sold(direct cost of the product/service) Average cost of a can of soda $ .50 Average shipping/distribution cost per unit $ .06 Royalty paid to School of Business per can $ .11 TOTAL COGS $ .67 GROSS PROFIT/CONTRIBUTION MARGIN per soda = $ .33 BREAK-EVEN POINT = $ 50/.33 = 151.5 cans of soda per month If 200 sodas sold per month… REVENUES (200 x $1) $ 200 Less: COGS (200 x $.67) - 134 Gross Profits $ 66 Less: Fixed Costs - 50 NET PROFITS $ 16/mo ($192/yr)

  4. PROFITS FOR SODA VENDING BUSINESS Assumes sales of 300 and 400 cans/mo If 300 sodas sold per month… REVENUES (300 x $1) $ 300 Less: COGS (300 x $.67) - 201 Gross Profits $ 99 Less: Fixed Costs - 50 NET PROFITS$ 49/mo($588/yr) If 400 sodas sold per month… REVENUES (400 x $1) $ 400 Less: COGS (400 x $.67) - 268 Gross Profits $ 132 Less: Fixed Costs - 50 NET PROFITS$ 82/mo($984/yr)

  5. THE ECONOMICS OF ONE UNIT SALE Selling price for one foot-long veggie-turkey sandwich $ 5.00 Cost of Goods SoldPriceUnitUsedCost VeggieTurkey (1/4 lb) $3.20 per lb ¼ lb $ .80 Cheese (5 slices) $2.88 24 pack 5 slices $ .60 Tomato (1/4 lb) $1.60 per lb ¼ lb $ .40 Pickles (2) $ .12 each 2 each $ .24 Lettuce (2 oz) $1.28 per lb 2 oz $ .16 Bread (1 long roll) $3.96 dozen 1 roll $ .33 Miracle Whip (1 oz) $3.84 32oz jar 1 oz $ .12 Mustard (1/2 oz) $2.40 20oz jar ½ oz $ .06 Salt (2 shakes) $1.00 per lb 1/100 lb $ .01 Napkins (2) $3.00 100 pack 2 each $ .06 Paper wrapping (2 foot) $ .10 per foot 2 feet $ .20 Plastic bag (1) $7.00 100 roll 1 bag $ .07$ 3.05 CONTRIBUTION MARGIN$1.95 **Direct Labor (~3 min) $8.00 per hr 1/20 hr $ .40** COSTS INCLUDING DIRECT LABOR$ 3.45** ** (do not use in your CM calculations)

  6. BREAK-EVEN FOR YOUR SANDWICH SHOP OVERHEAD EXPENSES Rent $1,000/ mo Electricity $100/ mo Phone $ 30/ mo Advertising $ 50/ mo Misc Supplies $ 50/ mo Monthly Labor 312 hrs/mo x ($8.00/hr + 25% benefits) = $3120/ mo (Open 26 days a month, 12 hours per day) TOTAL MONTHLY FIXED COSTS = $ 4,350/ mo CONTIBUTION MARGIN PER SANDWICH = $1.95 BREAK-EVEN POINT = 4,350/1.95 = 2,230.77 sandwiches a month, or about 85.8 sandwiches per day! (That’s about 7.15 sandwiches per hour of operation!)

  7. REVISED BREAK-EVEN FOR YOUR SANDWICH SHOP a) … if turkey price is $4/lb and tomatoes = $2/lb OVERHEAD EXPENSES Rent $1,000/ mo Electricity $100/ mo Phone $ 30/ mo Advertising $ 50/ mo Misc Supplies $ 50/ mo Monthly Labor 312 hrs/mo x ($8.00/hr + 25% benefits) = $3120/ mo (Open 26 days a month, 12 hours per day) TOTAL MONTHLY FIXED COSTS = $ 4,350/ mo Price increases add $.30 cost per sandwich… thus… CONTIBUTION MARGIN PER SANDWICH = $1.65 BREAK-EVEN POINT = 4,350/1.65 = 2,636.36 sandwiches a month, or about 101.4 sandwiches per day! (That’s about 8.45 sandwiches per hour of operation!)

  8. REVISED BREAK-EVEN FOR YOUR SANDWICH SHOP b) … if worker is paid $9.00/hr instead of $8.00/hr OVERHEAD EXPENSES Rent $1,000/ mo Electricity $100/ mo Phone $ 30/ mo Advertising $ 50/ mo Misc Supplies $ 50/ mo Monthly Labor*** 312 hrs/mo x ($9.00/hr + 25% benefits) = $3510/ mo (Open 26 days a month, 12 hours per day) TOTAL MONTHLY FIXED COSTS = $ 4,740/ mo CONTIBUTION MARGIN PER SANDWICH = $1.95 BREAK-EVEN POINT = 4,740/1.95 = 2,430.76 sandwiches a month, or about 93.49 sandwiches per day! (That’s about 7.79 sandwiches per hour of operation!)

  9. REVISED BREAK-EVEN FOR YOUR SANDWICH SHOP c) … if worker is paid $9.00/hr and turkey/tomato prices rise OVERHEAD EXPENSES Rent $1,000/ mo Electricity $100/ mo Phone $ 30/ mo Advertising $ 50/ mo Misc Supplies $ 50/ mo Monthly Labor*** 312 hrs/mo x ($9.00/hr + 25% benefits) = $3510/ mo (Open 26 days a month, 12 hours per day) TOTAL MONTHLY FIXED COSTS = $ 4,740/ mo Price increases add $.30 cost per sandwich… thus… CONTIBUTION MARGIN PER SANDWICH = $1.65 BREAK-EVEN POINT = 4,740/1.65 = 2,872.73 sandwiches a month, or about 110.49 sandwiches per day! (That’s about 9.21 sandwiches per hour of operation!)

  10. PROFIT EXPECTATIONS FOR YOUR SANDWICH SHOP d) Cheap turkey/tomatoes and $8/hr wages OVERHEAD EXPENSES Rent $1,000/ mo Electricity $100/ mo Phone $ 30/ mo Advertising $ 50/ mo Misc Supplies $ 50/ mo Monthly Labor 312 hrs/mo x ($8.00/hr + 25% benefits) = $3120/ mo (Open 26 days a month, 12 hours per day) TOTAL MONTHLY FIXED COSTS = $ 4,350/mo ADD IN EXPECTED PROFITS OF $2,000/mo CONTIBUTION MARGIN PER SANDWICH = $1.95 To achieve your profit objective, you must sell about 3,256.41 sandwiches a month ($6,350/1.95), or about 125.25 sandwiches per day! (That’s about 10.5 sandwiches per hour of operation!)

  11. PROFIT EXPECTATIONS FOR YOUR SANDWICH SHOP e) Expensive turkey/tomatoes and $9/hr wages OVERHEAD EXPENSES Rent $1,000/ mo Electricity $100/ mo Phone $ 30/ mo Advertising $ 50/ mo Misc Supplies $ 50/ mo Monthly Labor 312 hrs/mo x ($9.00/hr + 25% benefits) = $3510/ mo (Open 26 days a month, 12 hours per day) TOTAL MONTHLY FIXED COSTS = $ 4,740/mo ADD IN EXPECTED PROFITS OF $2,000/mo Price increases add $.30 cost per sandwich… thus… CONTIBUTION MARGIN PER SANDWICH = $1.65 To achieve your profit objective, you must sell about 4,084.85 sandwiches a month ($6,740/1.65), or about 157.11 sandwiches per day! (That’s about 13.1 sandwiches per hour of operation!)

More Related