This 6 page paper shows the student how to calculate costs for break even points and subsequent profits by calculating the contribution level. Several scenarios are considered numerous example calculations are given. The bibliography cites 3 sources.
Name of Research Paper File: TS14_TEmanct1.rtf
Unformatted Sample Text from the Research Paper:
price the goods are sold for. We are told that there is an income form the goods of 180,000, and 2,000 units are sold, this gives us a price per
unit of 90 per unit. With this knowledge we kneed to calculate what the variable price over unit is and the remainder will be the contribution. This will first be
allocated to the fixed costs, and only after fixed costs are accounted for can it be used to create net income. The
variable costs have been determined as 36, made up of 26 manufacturing costs and 10 administrative an selling expenses. This means that the contribution is 90 less 36
which is 54 per unit. If we are going to calculate the impact that a further 300 units will have on the net income we first have to make sure
that the contribution from the first 2,000 units have already covered these costs. Therefore, the contribution is 2,000 x 54, which is 108,000. With the fixed costs totalling 90,000 (60,0000
manufacturing costs + 30,000 administrative and selling costs), these are all covered. Therefore we do not need to consider the fixed costs in this calculation and the contribution will be
the net income. As a result the net income is the contribution 54 x number of units 300, which will give a
net income of 16,2000 for this order. Question 2 If the company wish to ensure that they have a net income of 45,000 this can be calculated in
terms of the number of units that they will have to sell to reach this mark. The fixed costs will remain the same as long as the increased production is