PRINTCHEATSHEETFINALEXAM - Projected Income Statement Cost...

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Cost Behavior Semi-Variable = taxi Unit Contribution Unit contribution = Selling Price - Variable Cost Per Unit Contribution Margin Rate (what % of selling price can cover fixed assets) = Unit Contribution/Selling Price Breakeven Units=Fixed Costs/Unit Contribution Sales=Fixed Costs/Contribution Margin Cash Breakeven Units = Cash Fixed Costs/(Selling Price-Cash variable costs/unit) Sales = Cash Fixed Costs/((SP-Cash VC per unit)/SP) Target Profit Breakeven Units= (Fixed Costs+Target Profit)/(SP-VC per unit) Sales=(Fixed Costs+Target Profit)/((SP-VC per unit)/SP) Breakeven with Multi-Products Sales = Fixed Costs/(Weighted Avrg Contr. Margin Rate) Weighted Average: 1. 2. RISK ASSESSMENT: Margin of Safety How much can projections be off before venture becomes breakeven proposition? Margin of Safety = (Projected Sales-Breakeven Sales)/Projected Sales Breakeven as % of Margin How much of the current market must be captured to breakeven? =Breakeven Sales dollars(or units)/Total Market (dollars or units) ROI = Recurring Annual Return/Initial Investment Projected Income Statement FIRST SOE 1. Manager’s estimates for new sales volume 2. ASSUMPTIONS 3. Profitability ratios needed for cogs, gross profit &op x (see if need to do some separately on one) 4. Sensitivty = high/low Differential Analysis Differential working capital investment: amount of additional money that would be tied up in working capital: Investment? or disinvestment? INV+AR-AP INV = [Diff COGS/(360 days x yr)] xDays of INV AR=[Diff Credit Sales/(360*yr)]xDays of AR AP=[Diff Credit Purchases (or COGS)/(360*yr)]*Days of AP Working capital: 1. does AR, INV, AP permanently change? 2. up or down? 3. is it investment or disinvestment (sell)? Differential ROI = (Differential Cash Flow/Differential Investment)*100 Differential payback = Differential Investment/Differential Cash Flow ****IN EITHER DO NOT include interest/financing costs only have operating decisions payback = has to be able to payback investors compare % to hurdle rate: given & minimum target rate of return for project (always higher than bank rate) - ALL OTHER INFO OUTSIDE OF differential assumed to be CONSTANT - no income tax 1. Different btw alternatives 2. cash inflow/outflow (no amort) 3. future consideration (no past costs bc “sunk”) - ROI- describe size of investors financial return relative to size of initial investment -THESE ratios assume recurring annual cash inflow or return which is constant over time 1. Sub-unit Evaluation - predict # of units sold - calculate variable cost as % of sales - Sensitivity = selling price, units to be sold, variable & fixed - What if? (what’s profit if lower selling price? what’s profit difference if units sold is 20% higher or lower than projected? what if variable/fixed goes up/down 5%?) - improve Product B or take out - this shows you problems with product B, which you wouldn’t have noticed
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PRINTCHEATSHEETFINALEXAM - Projected Income Statement Cost...

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