hafiz muhammad usama javed

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HAFIZ MUHAMMAD USAMA JAVED BBA-13-01

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Page 1: Hafiz muhammad usama javed

HAFIZ MUHAMMAD USAMA JAVEDBBA-13-01

Page 2: Hafiz muhammad usama javed

Some Application of CVP Concepts

Per Unit Percent of Sale

Selling price $250 100%

Variable expenses 150 60%

Contribution margin $100 40%

Page 3: Hafiz muhammad usama javed

Change in Fixed Cost and Sales Volume

Acoustic concepts is currently selling 400 speakers per month at $250 per speaker. Total monthly sales is $100,000. The sales manager feels that a $10,000 increase in the monthly advertising budget would be increase increases in monthly sales by $30,000 to a total 520 units. Should the advertising budget be increased? The following table shows the financial impact of the proposed change in the monthly advertising.

Page 4: Hafiz muhammad usama javed

Current Sale Sale with Additional Advertising Budget

Difference Percent of Sale

Sales $100,000 $130,000 $30,000 100%Variable Expenses

60,000 78,000 18,000 60%

Contribution Margin

40,000 52,000 12,000 40%

Fixed Expenses 35,000 45,000 10,000

Net Operating Income

$5000 $7000 $2000

Page 5: Hafiz muhammad usama javed

Alternative solution 1

Expected total contribution margin $130,000*40% CM ratio

%52,000

Present total contribution margin $100,000*40% CM ratio $40,000Incremental contribution margin 12,000Change in fixed expenses:Less incremental advertising expenses 10,000Increased net operating income

Page 6: Hafiz muhammad usama javed

Alternative solution 2

Incremental contribution margin $30,000*40% $12,000Less incremental advertising expenses 10,000Increased net operating income $2000

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Change in Variable Costs and Sales Volume

Expected total contribution margin with higher-quality components:400units*$90 per unit/speaker

$43,200

Present total contribution margin: 400unit/speakers * $100 per unit/per speaker

40,000

Increase in total contribution margin $3200

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Page 10: Hafiz muhammad usama javed

Change Fixed Costs, Sales price,and Sales Volume

Expected total contribution margin with lower selling price:600speakers*$80 per speaker

$48,000

Present total contribution margin:400spekers*$100 per speaker

40,000

Incremental contribution margin 8000Change in fixed expenses:Less incremental advertising expenses 15,000Reduction in net operating income $(7000)

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Present 400speakers per month

Expected 600 speakers per month

Total Per unit total Per unit Difference Sales $100,000 $250 $138,000 $230 $38,000Variable expenses

60,000 150 90,000 150 30,000

Contribution margin

40,000 100 48,000 80 8,000

Fixed expenses 35,000 50,000 15,000Net operating income(Loss)

$5000 $(2000) $(7,000)

Page 12: Hafiz muhammad usama javed

Change in Variable Costs, Fixed Costs, and Sales Volume

Expected Total contribution margin with sales staff on commissions: 460 speakers* $85 per speaker

$39,100

Present total contribution margin 400 speakers*$100 per speaker

40,000

Decreases in total contribution margin (900)Change in fixed expenses:Add salaries avoided if a commission is paid 6,000Increases in net operating income $5100

Page 13: Hafiz muhammad usama javed

Present 400 speakers per month

Expected 460 speakers per month Total Per

unitTotal Per unit Differenc

e Sale $100,000 $250 $115,000 $250 $15,000Variable expenses

60,000 150 75,900 165 15,900

Contribution margin

40,000 $100 39,100 $85 900

Fixed expenses

35,000 29,000 (6,000)Net operating income

$5,000 $10,100 $5,100

Page 14: Hafiz muhammad usama javed

Change in Selling price

Variable cost per speaker $150Desired profit per speaker $3,000/150 speakers 20Quoted price per speaker $170