Contribution Margin Analysis We calculate contribution margi

Contribution Margin Analysis:

We calculate contribution margin by taking our sales revenue less our variable costs. This basically tells us the portion of our sales that are available to cover the fixed cost of the business.

Contribution margin per unit is especially useful. We compute this by taking our sales revenues per unit less our variable cost per unit. With this, we can easily compute our break-even point.

Dog Day Care

Pricing at $18 per dog per day, you can expect to have 22 dogs per day

Pricing at $20 per dog per day, you can expect to have 15 dogs per day

Pricing at $25 per dog per day, you can expect to have 10 dogs per day

·       Overnight Boarding

Pricing at $25 per dog per day, you can expect to have 12 dogs per day

Pricing at $28 per dog per day, you can expect to have 10 dogs per day

Pricing at $430 per dog per day, you can expect to have 7 dogs per day

Basic Groom

Pricing at $25 per dog per day, you can expect to have 5 dogs per day

Pricing at $30 per dog per day, you can expect to have 4 dogs per day

Pricing at $35 per dog per day, you can expect to have 3 dogs per day

Break-Even Analysis:

Break-even analysis is a key element of cost-volume-profit analysis. The technique is helpful for new and small businesses to assess the viability of their start-up. However, it can also be quite beneficial for established businesses when evaluating new and existing product lines.

In this exercise, we are computing not only the break-even point but also the number of units that must be sold in order to earn given levels of target profit.

The break-even formula is:

Fixed Costs / Contribution Margin per Unit

The formula to compute the level required for a target profit is:

(Fixed Costs + Target Profit) / Contribution Margin per Unit

We have already computed fixed costs for each area in our Milestone One. We will be using these figures as follows:

Grooming, fixed costs: 2,367.92

Daycare, fixed costs: 859.39

Boarding, fixed costs: 1,378.99

Our computations would then be as follows:

Grooming

Sales Price $25

Break-even: 158

$1,000 Profit: 225

$1,500 Profit: 258

Sales Price $30

Break-even: 119

$1,000 Profit: 169

$1,500 Profit: 194

Sales Price $35

Break-even: 95

$1,000 Profit: 135

$1,500 Profit: 155

Daycare

Sales Price $18

Break-even: 65

$417 Profit: 97

$667 Profit: 116

Sales Price $20

Break-even: 57

$417 Profit: 84

$667 Profit: 101

Sales Price $25

Break-even: 43

$417 Profit: 64

$667 Profit: 76

Boarding

Sales Price $25

Break-even: 79

$583 Profit: 112

$909 Profit: 130

Sales Price $28

Break-even: 67

$583 Profit: 96

$909 Profit: 111

Sales Price $30

Break-even: 61

$583 Profit: 87

$909 Profit: 102

Break-Even Analysis

Instructions - Show all steps and calculations to determine the break-even, as well as the break-even for the target profit levels as outlined in the instructions. Round all decimals UP to next whole number

Grooming

Day Care

Boarding

Break-even Units=

Break-even Units=

Break-even Units=

Fixed Costs

Fixed Costs

Fixed Costs

Cont. Margin

Cont. Margin

Cont. Margin

Solution

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. Dog Day Care Boarding Basic Groom Selling Price 18 20 25 25 28 30 25 30 35 Less: Variable Cost                        4.78                        4.78                        4.78                        7.54                        7.54                        7.54                      10.01                      10.01                      10.01 Contribution Margin 13.22 15.22 20.22 17.46 20.46 22.46 14.99 19.99 24.99 Contribution Margin Ratio 73% 76% 81% 70% 73% 75% 60% 67% 71% Fixed Cost 859.39 859.39 859.39 1378.99 1378.99 1378.99 2367.92 2367.92 2367.92 Break Even (Fixed Cost/CM Ratio)                      1,170                      1,129                      1,062                      1,975                      1,888                      1,842                      3,950                      3,554                      3,317 Target Profit-1 (Fixed Cost+Target Proft)/CM Ratio 1738 1677 1578 2810 2686 2621 5618 5055 4718 Target Profit-2 (Fixed Cost+Target Proft)/CM Ratio 2078 2006 1887 3277 3132 3057 6452 5806 5418 Target Profit 417 417 417 583 583 583 1000 1000 1000 Target Profit 667 667 667 909 909 909 1500 1500 1500 Contribution Margin:                      13.22                      17.46                      14.99 (Fixed Cost/BEP) Variable Cost (Selling Price-CM)                        4.78                        7.54                      10.01