Acc 561 Week 5 Week 5 Cost-Volume-Profit-Analysis

Week 5: Cost-Volume-Profit-AnalysisChristina ForresterACC/561Sheri WangApril 1, 2018Informal memo to management addressing Mary's suggested changesFurther to Mary’s ideas for a major promotional campaign, we have made calculations to show the effects these changes will have on the break-even point and the margin of safety. The key statistics are summarised below.StatusCurrentWith promotionFixed costs$270,000$294,000 Variable cost per unit$ 24$ 24Unit selling price $40 $38 Expected sales units 20,000 24,000 CalculationsBreak even and Margin of safetyCurrentWith promotionMOS = (Budgeted sales less breakeven sales) divided by budgets salesContribution per unit = unit selling price-unit variable cost$16$14Breakeven volume = fixed cost/contribution per unit 16,875 21,000 Budgeted sales 20,000 24,000 MOS Units = (Budgeted sales- breakeven sales)3,125 3,000 Margin of safety percentage16%13%The break-even point is the point at which the revenue generated from the products is equal to the cost of running the business. Above the break-even point the business makes a profit, below the break-even point the business makes a loss. The current break-even point in units is 16,875 units, compared to the break-even point if 21,000 units if Mary’s ideas were used. This means the company would need