Ch_4b_part_b_class_notes

Ch_4b_part_b_class_notes - d. If BE increases, MOS...

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Chapter 4 – part b Class Notes 1. Hallstead Jewelers Case Recommendations a. Analysis 1 – Contribution Format allows C-V-P Analysis b. Analysis 2 – BE in $ = BE in units times Price per Unit c. Analysis 3 – Decreasing price to increase units is a bad idea d. Analysis 4 – Eliminating Sales Commissions part of the solution e. Analysis 5 – Increase in Advertising - only 4% increase in BE units
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f. Analysis 6 – Raising Prices 4% would result in Breakeven g. Horizontal Analysis – 30% increase in # of Sales Tickets vs. 55% increase in Salaries h. Recommended Changes Example 2. Margin of Safety a. MOS (in $ or units) = Actual Sales – Breakeven Sales b. MOS% = MOS / Actual Sales (using either $ or units) c. If BE decreases, MOS increases (no change in actual sales)
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Unformatted text preview: d. If BE increases, MOS decreases (no change in actual sales) 3. Degree of Operating Leverage a. DOL = Contribution Margin / Operating Income b. % change in Operating Income = % change in sales volume X DOL c. Consider the impact of Cost Structure on Operating Income with changes in Sales Volume d. DOL = 1 / MOS% MOS% = 1 / DOL 4. Additional Relationships a. Fixed Costs = BE$ X CMR = Actual Sales X (1 MOS%) X CMR b. Operating Income = MOS X CMR = Actual Sales $ X MOS % X CMR 5. Multi-product C-V-P Analysis a. Same for company as a whole as Single-product as long as the product mix does not change. b. How to distribute BE or TP units to individual product lines? c. Package approach vs. Weighted Average Unit approach...
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This note was uploaded on 10/20/2011 for the course ACC 222 taught by Professor Brewer during the Spring '08 term at Miami University.

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Ch_4b_part_b_class_notes - d. If BE increases, MOS...

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