Management Accounting Ch02_Stu.pptVIP

* * * * * * * * * * * * * * * * * * * Suppose Ramos Company has two products, wallets (W) and key cases (K). What is the break-even point for each product? * * * * * * * * * Nonprofit Application Suppose a city has a $100,000 lump-sum budget appropriation to conduct a counseling program. Variable costs per prescription are $400 per patient per day. Fixed costs are $60,000 in the relevant range of 50 to 150 patients. If the city spends the entire budget appropriation, how many patients can it serve in a year? Variable + Fixed Sales = expenses + expenses $100,000 = $400N + $60,000 $400N = $100,000 – $60,000 N = $40,000 ÷ $400 N = 100 patients Nonprofit Application Nonprofit Application If the city cuts the total budget appropriation by 10%, how many Patients can it serve in a year? Variable + Fixed Sales = expenses + expenses $90,000 = $400N + $60,000 $400N = $90,000 – $60,000 N = $30,000 ÷ $400 N = 75 patients Budget after 10% Cut $100,000 X (1 - .1) = $90,000 Sales Mix Analysis Learning Objective 7 Sales Mix Analysis Sales mix is the relative proportions or combinations of quantities of products that comprise total sales. Sales Mix Analysis Ramos Company Example Sales in units 300,000 75,000 375,000 Sales @ $8 and $5 $2,400,000 $375,000 $2,775,000 Variable expenses @ $7 and $3 2,100,000 225,000 2,325,000 Contribution margins @ $1 and $2 $ 300,000 $150,000 $ 450,000 Fixed expenses 180,000 Net income $ Wallets (W) Key Cases (K) Total Sales Mix Analysis Break-even point for a constant sales mix of 4 units of W for every unit of K. sales – variable – fixed = zero net income expense expenses [$8(4K) + $5(K)] – [$7(4K) + $3(K)] – $180,000 = 0 32K + 5K - 28K - 3K - 180,000 = 0 6K = 180,000 K = 30,000 W = 4K = 120,000 30,000K + 120,000W = 150,000 units. Let K = number of units of K to break even, and 4K = n