1-a Magic Realm, incorporated

Contribution Income Statement

Units 15000 Total Per Unit
Sales 300000 20 Sales = Selling price * units sold
less: Variable Expense 90000 6 VE = Variable expense per unit * units sold
Contribution Margin 210000 CM = Sales - Ve
Less: Fixed Expenses 182000 Given
Net operating income 28000 NOI = CM - FE

1-b
Degree of operating leverage = CM/ NOI

Degree of operating leverage = 210000/28000 = 7.5

This business is sensitive to demand changes due to have a large amount of expenses

2-a
Expected percentage increase in net operating income =
Expected percentage increase in net operating income =

2-b Expected amount of net operating income = last years NOI* total growth
Expected amount of net operating income = 28000*2.5
Expected amount of net operating income = 70000
ing price * units sold
le expense per unit * units sold

large amount of expenses

DOL * percentage increase in sales from last year

7.5 * 20 150 percent

OI* total growth Total growth = Percentage increase in net operating income + 1
Total growth = 1.50 + 1 = 2.5
 selling price per unit = 30
1 Break even units = Fixed Expense / CM per unit
Break even units = 216000/18
Break even units = 12000
Dollar sales = Break even units * selling price
Dollar sales = 12000*30= $ 360,000.00

2 Checking Total Per unit units

Sales 360000 30 12000
Variable expenses 144000 12
Contribution margin 216000
Fixed expenses 216000
Net operating income 0

Total per unit units

3-a Sales 510000 30 17000
3-b Variable expenses 204000 12
Contribution margin 306000 18 CM = FE + NOI
Fixed expenses 216000
Net operating income 90000

4 Margin of safety in dollars Total sales - Break even sales =

Margin of Safety in Percentage margin of safety in dollars / total sales =

5 Cm ratio = CMPU/Selling price

Cm ratio = 18/30 = 0.6
Contribution of 50,000 increase 50000*.6 30000
NOI increase = 30,000 30,000 goes direcly to NOI since F
CM per unit

* selling price

allocation

Units sold = CM / CM per unit

Variable Expenses = units sold * Variable expense per unit
Sales = Units sold * selling price per unit

450000-360000= 90000
total sales = 90000/450000= 20%
0 goes direcly to NOI since Fixed expense is fully covered with original data sales
1
Sales
less: variable expense
Contribution Margin
less: fixed expense
Net operating Income(loss)

2
breakeven point in units =
Break even point in units =
Break even point in dollars =
Break even point in dollars =
Checking
Sales
less: variable expense
Contribution Margin
less: fixed expense
Net operating Income(loss)

3 Profit = (price - Variable expense per unit) x units sold - 540,000

price
70
68
66
64
62
60
58
56
54
 52

4
Sales = PPU(58)*Units sold(30000)
less: variable expense = VEPU * units sold
Contribution Margin
less: fixed expense
Net operating Income(loss)
Total Price per unit
1,050,000.00 70.00
600,000.00 40.00
450,000.00 30.00
540,000.00
(90,000.00)

Fixed expense/ CM per unit =

18000
Break even units * Selling price = 18000*70
1,260,000.00
Total Price per unit
1,260,000.00 70.00
720,000.00 40.00
540,000.00 30.00
540,000.00
-

Units sold Variable expense per unit

15,000 40
20,000 40
25,000 40
30,000 40
35,000 40
40,000 40
45,000 40
50,000 40
55,000 40
 60,000 40

Total Price per unit

1,740,000.00 58.00
1,200,000.00 40.00
540,000.00 18.00
540,000.00
-
Units
15000

540000/30

Units
18000

(price per unit - Variable expense per unit) Units sold * CMPU
CMPU TOTAL CM
30 450000
28 560000
26 650000
24 720000
22 770000
20 800000
18 810000
16 800000
14 770000
 12 720000

units
Units = Fixed expense(540,000) / CMPU (18)
30000

CMPU(price per unit - Variable expense per unit)

Sales = Price per unit* units sold
Variable Expense = Variable expense price per unit * units sold

Total CM - fixed expense(540,000)

Total profit
-90000
20000
110000
180000
230000
260000
270000 = MAX PROFIT
260000
230000
180000
1 White Fragrant
Percentage of Total sales 40% 24%
Sales 300,000.00 100% 180,000.00
Less:Varaible Expenses 216,000.00 72% 36,000.00
Contribution Margin 84,000.00 28% 144,000.00
Less: Fixed expenses
Net Operating income (loss)

2
Break-even Sales = Fixed Expenses/ Cm ratio
Cm ratio = Total CM / Total Sales = 390000/750000
Cm ratio = 0.52

Break-even Sales = 449,280/0.52

Break-even Sales = 864000
Fragrant Loonzain Total
24% 36% 100%
100% 270,000.00 100% 750,000.00 100%
20% 108,000.00 40% 360,000.00 48%
80% 162,000.00 60% 390,000.00 52% CM = Actual Sales * CM allocation%
449,280.00
(59,280.00)
tual Sales * CM allocation%
 1
Sales
Less:Varaible Expenses
Contribution Margin
Less: Fixed expenses
Net Operating income

Degree of operating leverage = CM/ NOI

Break even units = Fixed Expense / CM per unit
Dollar sales = Break even units * selling price
Margin of safety in dollars = Total sales - Break even sales =
 Margin of Safety in Percentage margin of safety in dollars / total sales =

3
Cyclical Movements in the economy
If the industry experiences downturns (which is common in cyclical industries), s

4 Amount
Sales 585,000.00

Contribution Margin 234,000.00

Less: Fixed expenses 180,000.00
Net Operating income 54,000.00

break Even sales = FE/CM Ratio = 180,000/.4 =

 Present Proposed
Amount Per unit units % Amount Per unit
450,000.00 30.00 15000 100% 450,000.00 30.00
315,000.00 21.00 70% 180,000.00 12.00
135,000.00 9.00 30% 270,000.00 18.00
90,000.00 225,000.00
45,000.00 45,000.00
VEPU=SPU*.7

Present Proposed
3 135,000/45,000 6
e / CM per unit 10000 90,000/9 12500
nits * selling price 300,000.00 10,000*30 375,000.00
Break even sales = 150,000.00 450,000-300,000 75,000.00
ety in dollars / total sales = 33.33% 150,000/450,000 16.67%

ommon in cyclical industries), sales could drop, and the company would still be stuck paying high fixed costs.

Per unit units Ratio %

30.00 19500 100%

12.00 40% CM = FE + NOI = 180,000+54000

CM Ratio = CM/ Total Sales = 234,000/585,000

450000
Proposed
units %
15000 100%
40% VEPU reduced by 9 (21-9=12)
60%

Proposed
270,000/45,000
225,000/18
12,500*30
450,000-375,000
 75,000/450,000

ng high fixed costs.

 1.56*2406

Variable Cost of electricity = (Cost at hight activity - Cost at low Activity)/ (High activity days-low activ
Variable Cost of electricity = (5148-1588)/(2406-124)= 3560/2282=

Fixed Cost = Total Cost - Total Varaible Cost for highest point day = 5,148 - (1.56*2406) = 5148 -375

Seasonal factors like winter or summer

heating in winter and air conditioning in summer can significantly affect electricity usage.

Systematic factors like guests switching off fans and lights

 energy-saving behavior by guests can reduce electricity use.

Number of days present in a month

more days = more nights of operation = more energy used, even at the same daily occupancy.

Fixed salary paid to hotel receptionist

this is a fixed labor cost, unrelated to electricity usage.

Income taxes paid on hotel income

taxes are financial/administrative expenses, not operational electricity costs.

gh activity days-low activity days)
1.56

1.56*2406) = 5148 -3753.36 = 1394.64 Round off = 1395

ctricity usage.
me daily occupancy.
Total cost high activity = 105,000*0.114 = 11970
Total cost of low activity = 70,000*0.134= 9380
Variable cost per km = (Total costs difference between high activity vs low activity) / High Distance - l
Variable cost per km = (11970-9380)/(105000-70000) 0.074

Fixed Cost = Total Cost - Total Varaible Cost for highest distance
Fixed cost = 11970 -(0.074*105000) = 11970-7770 = 4200

2
Y: Total Annual Cost in dollar
X: Kilometers driven per year
Y=4200+0.074X

Y=4200+0.074X
X: 80000
Y= 4200+0.074*80000
= 10120
ctivity) / High Distance - low distance
7.4cents/km
 2
Units Cost
July 4000 $ 34,000.00
September 5000 $ 38,000.00

Shipping expense
Variable cost per unit = (Total costs difference between high activity vs low activity) / High units - low
Variable cost per unit = (38,000-34,000)/(5,000-4,000) = 4000/1000 =

Fixed Cost = Total Cost - Total Varaible Cost for highest activity month
Fixed cost = 38,000 - (4*5000) = 38,000 - 20,000 = 18,000.00
2
Y : total cost
a:fixed cost
b: varaible cost per unit Y = 18,000+4X
X: Units

Salareies and commiusions

Units Cost
July 4000 78000
September 5000 90000

Variable cost = (90000-78000)/(5000-4000) = 12000/1000 =

Fixed cost = 90,000 - (12*5000) = 90,000 - 60,000 =

Y : total cost
a:fixed cost
b: varaible cost per unit Y = 30,000+12X
X: Units

3
income Statement
Total Per unit units
Sales 500,000.00 100 5000
Less:Variable Expenses:
Cost of Goods sold 300,000.00
Shipping Expense 20,000.00 4
Salaries and commsion 60,000.00 12
Contribution Margin 120,000.00
Less: Fixed Expenses:
Advert Expense 21,000.00
Shipping Expense 18,000.00
Salaries and commision Expense 30,000.00
Insurance expense 6,000.00
Depreciation Expese 15,000.00
Net Operating income 30,000.00
vity) / High units - low units
$ 4.00 per unit
 $ 12.00 per unit
30,000.00

Selling cost per unit

500,000/5,000
100
VShipping expense = Vshipping per unit * units = 4*5000
VS&C = VS&C per unit* units = 12*5000
CM = Sales - Total Variable costs = 500,000 - 300,000 - 20,000 - 60,000

all Fixed costs

NOI = CM - FE = 120,000 - 21,000 - 18,000 - 30,000 - 6,000 - 15,000