Question

Assignment – Week 13

1. Bakery is making pies, which has a monthly fixed cost of $ 6000. Variable cost Will be $ 2.00 per pie and retail price will be $ 7.00 each. (12)

1. How many pies must be sold per month in order to break even?

2. What would be the profit (loss) be if 1,000 pies are made and sold per month?

3. How many pies must be sold to realize a profit of $ 4000 per month?

2. Assume

that you would start a business of having a hot dog truck at KPU Surrey campus (32)

1. Identify your fixed costs and variable costs (4)

2. Identify pricing tactic you would deploy? (2)

3. Decide on a selling price for your hot dog (consider you have only one size) (2)

4. what is your mark up? (2)

5. Based on your selling price, what is your contribution? (2)

6. How many hot dogs do you need to sell to make a profit per month? (Do a Break-even analysis)

   (5)

7. What should be your daily average sales quantity (assume you open 20 days per month) (2)

8. What are things you could do to lower your break-even sales quantity? (3)

9. What are some things you could do to make sure you meet your break-even point as quickly as

   possible? (3)

10. Identify some of your pull strategies? (4)

11. What type of promotions would you do to improve your sales? (3)

(Full marks will be awarded for using realistic pricing and practical approaches)

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4. Based on your promotion decided, develop your promotional material? Use any appropriate promotional media and marks awarded based on creativity (10)

5. Following assignment guidelines, reliable and sufficient research performed to support the argument. Sources cited to support statements. Clear and concise writing (5 points)

Total Points 54 – (Percentage 5%)

Revision May 2020

Answer 1

Answer 1:

(a) BEP sale (units) =      ­­­____Fixed Cost_____

                                            Selling Price-Variable cost

                                  = $6,000/$7-$2

                                 = $6,000/$5

                                 = 1,200

(b) Profit/Loss if 1,000 pies are sold

                 Sale Price :       $7

                 Variable cost : $2

                  Contribution : $5

   Contribution of 1,000 pies= 1000*5 = $5,000

Profit/(Loss) = $5,000-$6,000 = ($1,000)

(c) Desired units to earn profit of $4,000

                   (Desired profit +Fixed cost)/Contribution

                   ($4,000+$6,000)/$5 = 2,000 units

Answer 2:

Cost is something that can be classified in several ways depending on its nature. One of the most popular methods is classification according to fixed costs and variable costs. Fixed costs do not change with increases/decreases in units of production volume, while variable costs are solely dependent on the volume of units of production. Fixed and variable costs are key terms in managerial accounting, used in various forms of analysis of financial statements.

Fixed costs are predetermined expenses that remain the same throughout a specific period. These overhead costs do not vary with output or how the business is performing. To determine your fixed costs, consider the expenses you would incur if you temporarily closed your business. You would still continue to pay for rent, insurance and other overhead expenses.

Some examples of fixed costs include:

§ Rent

§ Telephone and internet costs

§ Insurance

§ Employee Salaries

§ Loan Payments

Any small business owner will have certain fixed costs regardless of whether or not there is any business activity. Since they stay the same throughout the financial year, fixed costs are easier to budget. They are also less controllable than variable costs because they’re not related to operations or volume.

Variable costs, however, change over a specified period and are associated directly to the business activity. These are based on the business performance and the volume of services the business generates.

Some examples of variable costs include:

§ Direct labor

§ Commissions

§ Taxes

§ Operational expenses

Since they are changing continuously and the amount you spend on them differs from month-to-month, variable expenses are harder to monitor and control. They can decrease or increase rapidly, cut your profit margins and result in a steep loss or a whirlwind profit for the business.