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Part 1: In this unit, you have been introduced to contribution margin, break-even analysis, and cost-volume-profit analysis

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Part 1:

In this unit, you have been introduced to contribution margin, break-even analysis, and cost-volume-profit analysis. The contribution margin is how much a product contributes to covering fixed costs. Break-even is the point at which both variable and fixed costs are recouped through pricing, with no amounts left over. Both contribution margin and break-even analyses are part of cost-volume-profit analyses (CVP); however, in addition, CVP can be further expanded to determine how changes in prices, costs, and volume impact profits. CVP can also be used to determine the volume needed to make a targeted profit, which can be expressed in both units and sales dollars. Analyses of these variables are critical to management decision-making process. Use this background knowledge to respond to the discussion prompt below:

Refer to the manufacturing company you selected for the Unit 2 Discussion and explain how you would determine the company’s contribution margin and contribution margin percent. In your initial post include the following:

• Identify which specific variables should be included in the calculation.
• Illustrate your explanation by calculating the contribution margin and contribution margin percent using hypothetical values.
• Explain what your calculated results tell you about the company’s sales and cost structure.

Note:

Your discussion should have a minimum of 250 words in length and no more than 450 words. Please include a word count. Following the APA standard, use references and in-text citations from the textbook and any other sources.

Part 2:

Submit a paper which is 2-3 pages in length (no more than 4-pages), exclusive of the reference page. The paper should be double spaced in Times New Roman (or its equivalent) font which is no greater than 12 points in size. The paper should cite at least three sources in APA format.  One source can be your textbook.

In this paper, please discuss the following case study. In doing so, explain your approach to the problem, support your approach with references, and execute your approach. Provide an answer to the case study’s question with a recommendation.

You are the owner of a parasailing company that is expanding operations to a new beachfront location, and you need to prepare a 3-year analysis for the bank that may loan you the funds to purchase your boat and parasailing equipment. A lot of business is done on a referral basis, where a company pays a fee to a 3rd party to send them customers. However, because of your well-established reputation, you already have received requests for “flights” to be scheduled as soon as you open the new location. Therefore, you expect to break-even the first year but must calculate the number of flights needed. You also need to determine the new break-even point in Year 2 if the location allows referrals, which you believe will cost on average about 2% of the sales price overall. Finally, you need to determine the volume needed to have $10,000 in profit in Year 3. The following information is available:

• Sales price per flight $175
• Estimated loan payment per month $350
• Fuel costs per flight $100
• Full-time scheduler salary $2,500 per month
• Boat crew per flight $30
• $500 per month dock fee and use of a small office on a pier

Requirements:

• Calculate the Year 1 break-even quantity, contribution margin, and contribution margin ratio. Explain how the values were determined.
• Calculate the Year 2 break-even quantity, break-even sales, and contribution margin ratio. Explain how the values were determined.
• Determine the number of flights (units) needed to retain a profit of $10,000 in Year 3, assuming the company does allow for referrals.
• Recommend if the bank should issue the loan.

Superior papers will:

• Perform all calculations correctly.
• Articulate the approach to solving the problem.
• Explain the relationship of the costs to the concept of contribution margin.
• Discuss any limitations of the data, including what may be missing.
• Conclude on whether the bank should issue the loan.

 

Part 3:

 

This week has focused on using several cost analysis tools to determine how well products contribute to a company’s profitability. However, all of these tools are internally used and not required to be published outside of an organization. Instead, external stakeholders rely on the three key financial statements reviewed in Unit 1:

• Income Statement
• Balance Sheet
• Statement of Cash Flows)

If a company’s CVP analyses showed it was not operating at break-even, where on the financial statements might one be able to see this impact (i.e., specific line items on the statements)?

As portfolio activities are to be self-reflective, please make sure to connect the portfolio assignment to:

• Your personal experiences
• Course readings and any external readings.
• Discussion forum posts or other course objectives that tie into your reflection.

The Portfolio Activity entry should be a minimum of 500 words and not more than 750 words. Use APA citations and references if you use ideas from the readings or other sources.