Question

Contribution Margin Analysis:

We calculate contribution margin by taking our sales revenue less our variable costs. This basically tells us the portion of our sales that are available to cover the fixed cost of the business.

Contribution margin per unit is especially useful. We compute this by taking our sales revenues per unit less our variable cost per unit. With this, we can easily compute our break-even point.

Dog Day Care

Pricing at $18 per dog per day, you can expect to have 22 dogs per day

Pricing at $20 per dog per day, you can expect to have 15 dogs per day

Pricing at $25 per dog per day, you can expect to have 10 dogs per day

·       Overnight Boarding

Pricing at $25 per dog per day, you can expect to have 12 dogs per day

Pricing at $28 per dog per day, you can expect to have 10 dogs per day

Pricing at $430 per dog per day, you can expect to have 7 dogs per day

Basic Groom

Pricing at $25 per dog per day, you can expect to have 5 dogs per day

Pricing at $30 per dog per day, you can expect to have 4 dogs per day

Pricing at $35 per dog per day, you can expect to have 3 dogs per day

Break-Even Analysis:

Break-even analysis is a key element of cost-volume-profit analysis. The technique is helpful for new and small businesses to assess the viability of their start-up. However, it can also be quite beneficial for established businesses when evaluating new and existing product lines.

In this exercise, we are computing not only the break-even point but also the number of units that must be sold in order to earn given levels of target profit.

The break-even formula is:

Fixed Costs / Contribution Margin per Unit

The formula to compute the level required for a target profit is:

(Fixed Costs + Target Profit) / Contribution Margin per Unit

We have already computed fixed costs for each area in our Milestone One. We will be using these figures as follows:

Grooming, fixed costs: 2,367.92

Daycare, fixed costs: 859.39

Boarding, fixed costs: 1,378.99

Our computations would then be as follows:

Grooming

Sales Price $25

Break-even: 158

$1,000 Profit: 225

$1,500 Profit: 258

Sales Price $30

Break-even: 119

$1,000 Profit: 169

$1,500 Profit: 194

Sales Price $35

Break-even: 95

$1,000 Profit: 135

$1,500 Profit: 155

Daycare

Sales Price $18

Break-even: 65

$417 Profit: 97

$667 Profit: 116

Sales Price $20

Break-even: 57

$417 Profit: 84

$667 Profit: 101

Sales Price $25

Break-even: 43

$417 Profit: 64

$667 Profit: 76

Boarding

Sales Price $25

Break-even: 79

$583 Profit: 112

$909 Profit: 130

Sales Price $28

Break-even: 67

$583 Profit: 96

$909 Profit: 111

Sales Price $30

Break-even: 61

$583 Profit: 87

$909 Profit: 102

Break-Even Analysis

Instructions - Show all steps and calculations to determine the break-even, as well as the break-even for the target profit levels as outlined in the instructions. Round all decimals UP to next whole number

Grooming

Day Care

Boarding

Break-even Units=

Break-even Units=

Break-even Units=

Fixed Costs

Fixed Costs

Fixed Costs

Cont. Margin

Cont. Margin

Cont. Margin

Answer 1

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	Dog Day Care			Boarding				Basic Groom
Selling Price	18	20	25	25	28	30	25	30	35
Less: Variable Cost	4.78	4.78	4.78	7.54	7.54	7.54	10.01	10.01	10.01
Contribution Margin	13.22	15.22	20.22	17.46	20.46	22.46	14.99	19.99	24.99
Contribution Margin Ratio	73%	76%	81%	70%	73%	75%	60%	67%	71%
Fixed Cost	859.39	859.39	859.39	1378.99	1378.99	1378.99	2367.92	2367.92	2367.92
Break Even (Fixed Cost/CM Ratio)	1,170	1,129	1,062	1,975	1,888	1,842	3,950	3,554	3,317
Target Profit-1 (Fixed Cost+Target Proft)/CM Ratio	1738	1677	1578	2810	2686	2621	5618	5055	4718
Target Profit-2 (Fixed Cost+Target Proft)/CM Ratio	2078	2006	1887	3277	3132	3057	6452	5806	5418
Target Profit	417	417	417	583	583	583	1000	1000	1000
Target Profit	667	667	667	909	909	909	1500	1500	1500
Contribution Margin:	13.22			17.46			14.99
(Fixed Cost/BEP)
Variable Cost (Selling Price-CM)	4.78			7.54			10.01