Learning styles represent the different approaches to learning based on preferences, weaknesses, and strengths. Below theīreakeven point the triangle described by the total revenue and the total cost line is called the We have got a triangle above the breakeven point and we call this triangle the area of profit. Let's take a look at these triangles that will be described by the total revenue and the total cost line. So I've got a 1000 unitīreakeven point there it is, right there on the x-axis and Page we 2 of 3 can also see myīreakeven point in dollars of 40000 points up ovFinancial er here on Management the of y-axis, To total costs and your net operating income is going to be zero. Look at Firm Y, I calculated the lines the same way and look where the total revenue and totalĬost line meet that's the breakeven point that makes sense doesn't it? If total revenues are equal If you look at this and follow it down it winds up at the 1200 unit level on the x-axis. Is the breakeven point and I've calculated the breakeven point up here just to exemplify this and Where it starts out, it starts out at 18000 that's my fixed portion and then it continues up at a Now that includes fixed and variable cost and look This line is horizontal line is my total fixed cost line and we see that comes right in 18000 forįirm X. Then off course if we sell zero units we would have zero revenues, so that describes the total revenue So the coordinates are 2000, 80000 on this top coordinate and Had a range of Oto 2000 unit sold and I simply did some multiplications, so 2000 times my 40 dollar Let's take a look at the graph, this top line I've labeled total revenue and the way I calculated that was I Per unit, so they probably have a higher amount of direct labor cost built into their cost structure. Firm X however has lower fixed costs but higher variable cost Have higher fixed cost from that machinery and they've reduced their variable cost per unit byĮliminating some of their direct labor. Just looking at these numbers we can probably say that firm Y is more automated than firm X. Seeing here is a tradeoff and this is usually a tradeoff between labor and automation, IE machinery. However we only have a $10 variable cost per unit which leaves us with a contribution margin of $30.Īlso notice that firm X has fixed cost of $18,000 while firm Y has fixed cost of 30,000. $15 contribution margin per unit, taking a look at firm Y we have that same sales price of $40, So notice that firm X has a $40 sales price per unit, $25 variable cost per unit and that leaves it with a What I've done here is I've created two firms firm X and firm Y and these firms have Now that we've explored cost behavior and taken a look at breakeven analysis, profit analysis and theĬontribution format income statement, let's spend a few minutes looking at this in a graphical
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