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1 Break even Analysis

Variable cost 2003 2004 2006 Years

COGS 4,326,000 4,132,000 5,570,000 Sales


Commisions 429,000 405,000 536,000 Variable cost (-)
Contribution (Sales-Var
Total 4,755,000 4,537,000 6,106,000 Fixed costs (-)

Net (Contribution-Fixed
Fixed Cost 2003 2004 2006

Salaries 2,021,000 2,081,000 3,215,000 No. of sale tickets


Advertisments 254,000 250,000 257,000 Contribution Per Unit(
Adm. Expenses 418,000 425,000 435,000 Break Even point (Units
Rent 420,000 420,000 840,000 (Fixed Cost/Contribution
Depreciation 84,000 84,000 142,000
Misc Expenses 53,000 93,000 122,000 Average Sales ticket

Total 3,250,000 3,353,000 5,011,000 Break Even point ( $ )


(Units * Average sales ti

Margin of safety
(=) Sales - Break even sa

2 Years 2006
No. of sale tickets 7,500
Contribution Per Unit(Contribution/No.of sale Tickets) 614
Break Even point (Units ) 8,161
(Fixed Cost/Contribution per unit)

Average Sales ticket 1,398

Break Even point ( $ )


11,406,962
(Units * Average sales ticket)

3 Sales commision = 0
So, Variable Cost = COGS

Years 2006

Sales 10,711,000
Variable cost (-) 5,570,000
Contribution (Sales-Variable Cost) 5,141,000
Fixed costs (-) 5,011,000

Net (Contribution-Fixed Costs) 130,000

Years 2006
No. of sale tickets 6,897
Contribution Per Unit(Contribution/No.of sale Tickets) 745
Break Even point (Units) 6,723
(Fixed Cost/Contribution per unit)

Average Sales ticket 1,553


Break Even point ( $ ) 10,440,192
(Units * Average sales ticket)

4 Increase in Advertisement expense = 200,000

Total Fixed Cost 2006

Salaries 3,215,000
Advertisments 457,000
Adm. Expenses 435,000
Rent 840,000
Depreciation 142,000
Misc Expenses 122,000

Total 5,211,000

Years 2006

Sales 10,711,000
Variable cost (-) 6,106,000
Contribution (Sales-Variable Costs) 4,605,000
Fixed costs (-) 5,211,000

Net Income (Contribution-Fixed Costs) -606,000

Years 2006
No. of sale tickets 6,897
Contribution Per Unit(Contribution/No.of sale Tickets) 668
Break Even point (Units) 7,805
(Fixed Cost/Contribution per unit)

Average Sales ticket 1,553

Break Even point ( $ ) 12,120,572


(Units * Average sales ticket)

5 Assuming - All details same in 2007 as was in 2006

Variable cost 2006


No. of sales tickets (in 2006)
COGS 5,570,000 6,897
Commisions 536,000
Total Cost (FC+VC)
Total 6,106,000 11,117,000

New Avg. SalesTicket Price (in $)


Fixed Cost 2006 1,612

Salaries 3,215,000 Old Avg. Sales Ticket Price (in $)


Advertisments 257,000 1,553
Adm. Expenses 435,000
Rent 840,000
Depreciation 142,000
Misc Expenses 122,000
Total 5,011,000

6 1. Try to increase sales beyond 7505 units.


2. Cut down on some fixed cost.
3. Explore the option of increase in average sales ticket
price.
2003 2004 2006

8,583,000 8,102,000 10,711,000


Variable cost (-) 4,755,000 4,537,000 6,106,000
Contribution (Sales-Variable Cost) 3,828,000 3,565,000 4,605,000
Fixed costs (-) 3,250,000 3,353,000 5,011,000

Net (Contribution-Fixed Costs) 578,000 212,000 -406,000

No. of sale tickets 5,341 5,316 6,897


Contribution Per Unit(Contribution/No.of sale Tickets) 717 671 668
Break Even point (Units ) 4535 5000 7505
(Fixed Cost/Contribution per unit)

Average Sales ticket 1,607 1,524 1,553

Break Even point ( $ ) 7,287,019 7,619,807 11,655,380


(Units * Average sales ticket)

Margin of safety
(=) Sales - Break even sales 1,295,981 482,193 -944,380