Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
357
P11–6, Concluded
4.
5. Operating Leverage =
Contribution Margin
Operating Income
$2,500,000
$2,400,000
$0
$15,000,000
0100,000 200,000 300,000 400,000 500,000
Operating
Loss Area
358
METRIC-BASED ANALYSIS
MBA 11–1
(2) Margin of Safety (percentage) = Sales – Sales at Break-Even Point
Sales
b. The break-even point (S) is determined as follows:
MBA 11–2
359
MBA 11–3
MBA 11–4
1. a. 6,300 game players (31,500 – 25,200)
360
MBA 11–5
1. Margin of Safety = –Sales Sales at Break-Even Point
Sales
2. Margin of Safety = Sales – Sales at Break-Even Point
Sales
MBA 11–6
1. Estimated unit sales ................................................. 400,000 units
361
CASES
Case 11–1
In an absolute sense, Phil’s actions are devious. He is clearly attempting to use
the first four-year scenario, which is favorable, as a way to market the partner-
362
Case 11–2
The airline industry has a high operating leverage. This means that fixed costs
are a large part of the cost structure. The break-even volume is around 66% of
capacity. When the volume falls below 66%, the industry loses money. As the
percentage increases above 66%, the industry becomes very profitable. There is a
363
Case 11–3
Do-Nothing Strategy:
Revenue – Variable Costs – Fixed Costs = Profit
Dan’s Strategy:
Revenue – Variable Costs – Fixed Costs = Profit
Case 11–4
The direct labor costs are not variable to the increase in unit volume. The unit vo-
One Two Three Four
Color Color Color Color Total
364
Case 11–5
The Shipping Department manager should respond by pointing out that the activi-
ties performed by his department are related to sales orders and not sales volume.
Case 11–6
There are many possible applications of break-even analysis in a school envi-
ronment. Below are just a few possible ideas.
Break-Even Analysis Revenue Fixed Costs Variable Costs
1. Break-even number of
students in a class Student tuition for
a class Faculty salary,
space costs Supplies, copying
