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Cost-Volume-Profit Analysis

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Cost-Volume-Profit Analysis

Overview

Cost-Volume-Profit Analysis: The next step in planning for your new business is to analyze the cost behaviors and systems of your industry and conduct the relevant financial calculations to determine appropriate costing solutions. In this milestone assignment, you will conduct a break-even analysis to determine your target profits and the selling price you plan to use to achieve these profits for each product.

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Prompt: Cost-Volume-Profit Analysis

Use information from Milestone One and the provided Milestone Two Market Research Data Appendix Word Document to conduct a cost-volume profit analysis. Complete the “Contribution Margin Analysis” and “Break-Even Analysis” tabs in the Project Workbook Spreadsheet that you used for completing the Milestone One assignment.

Specifically, you must address the following rubric criteria:

  • Contribution Margin. Determine your contribution margin per unit in the “Contribution Margin Analysis” tab.
    • Choose a sales price for each product.
    • Calculate the contribution margin for each product based on your sales price and the variable cost for that product. Show your work using calculations to the side of the table or using appropriate formulas in the table.
  • Break-Even Analysis. Use cost-volume-profit (CVP) analysis to determine your break-even points for achieving your target profits in the “Break-Even Analysis” tab.
    • Determine the break-even points for each product. Show your work using calculations to the side of the table or using appropriate formulas in the table.
    • Determine break-even units for the suggested target profits for each product. Show your work using calculations to the side of the table or using appropriate formulas in the table.

Guidelines for Submission

Submit the Project Workbook with the “Contribution Margin Analysis” and “Break-Even Analysis” tabs completed. This file should be completed and submitted using Microsoft Excel.

Milestone Two Rubric

Cost-Volume-Profit Analysis

Criteria Exemplary (100%) Proficient (85%) Needs Improvement (55%) Not Evident (0%) Value
Contribution Margin: Sales Price Chooses a sales price for each product N/A N/A Does not attempt criterion 10
Contribution Margin Calculates the contribution margin for each product, with no errors Calculates the contribution margin for each product, with some errors N/A Does not attempt criterion 20
Break-Even Analysis: Break-Even Points Determines the break-even points for each product, with no errors; shows work through calculations or formulas Determines the break-even points for each product, with minimal errors Determines the break-even points for each product, with significant errors Does not attempt criterion 30
Break-Even Analysis: Target Profits Determines break-even units for the suggested target profits for each product, with no errors; shows work through calculations or formulas Determines break-even units for the suggested target profits for each product, with minimal errors Determines break-even units for the suggested target profits for each product, with significant errors Does not attempt criterion 40
Total: 100%

Cost Classification

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Cost Classification

Overview

Cost Classification: Successful entrepreneurs understand all aspects of business, especially costs and costing systems. In the course project, you will assume the role of the owner of a small business and apply managerial accounting principles to evaluate and manage costs related to your services within a costing system. In the first milestone of the project, you will determine and classify the costs necessary for opening your business.

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Scenario

You plan to open a business manufacturing collars, leashes, and harnesses for pets. To begin, you will manufacture these in a standard style and size with plans to expand your range over the year. In a few weeks, you will present your company’s financial strategy to some key investors. To begin creating your strategy, you need to consider and record all the costs associated with operating your business. You have decided to use the job order costing system.

Prompt: Cost Classification

Use the given operational costs in the Milestone One Operational Costs Data Appendix Word Document  to complete the first two tabs, “Cost Classification” and “Variable and Fixed Costs,” in the Project Workbook Spreadsheet.

Specifically, you must address the following rubric criteria:

  • Cost Classification. Accurately classify all your costs in the “Cost Classification” tab of your workbook.
    • Identify direct material, direct labor, overhead, and period costs. (Note: Fixed and variable costs have been classified for you.)
  • Variable and Fixed Costs. Complete the “Variable and Fixed Costs” tab of your workbook. (Note: Some costs are provided for you. Fill in only the missing costs.)
    • Determine your total variable cost per unit and the total fixed costs for each product. Show your work using calculations to the side of the table or using appropriate formulas in the table.

Cost Classification: Guidelines for Submission

Submit the Project Workbook with the “Cost Classification” and “Fixed and Variable Costs” tabs completed. This file should be completed and submitted using Microsoft Excel.

Milestone One Rubric

Criteria Exemplary (100%) Proficient (85%) Needs Improvement (55%) Not Evident (0%) Value
Costs Classification Classifies all costs, including direct material, direct labor, overhead, and period costs, with no errors Classifies all costs, including direct material, direct labor, overhead, and period costs, with minimal errors Classifies all costs, including direct material, direct labor, overhead, and period costs, with significant errors Does not attempt criterion 25
Variable and Fixed Costs: Collars Determines the per unit cost and the fixed costs for collars, with no errors; shows work through calculations or formulas Determines the per unit cost and the fixed costs for collars, with minimal errors Determines the per unit cost and the fixed costs for collars, with significant errors Does not attempt criterion 25
Variable and Fixed Costs: Leashes Determines the per unit cost and the fixed costs for leashes, with no errors; shows work through calculations or formulas Determines the per unit cost and the fixed costs for leashes, with minimal errors Determines the per unit cost and the fixed costs for leashes, with significant errors Does not attempt criterion 25
Variable and Fixed Costs: Harnesses Determines the per unit cost and the fixed costs for harnesses, with no errors; shows work through calculations or formulas Determines the per unit cost and the fixed costs for harnesses, with minimal errors Determines the per unit cost and the fixed costs for harnesses, with significant errors Does not attempt criterion 25
Total: 100%

Cost and Price Analysis

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Cost and Price Analysis

Cost and Price Analysis (5-7 sentences)

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Discussion 1

What are some pricing advantages and disadvantages in contracting with the government for business? Determine which major concern you believe is the most important to address and provide a rationale for your response.

Discussion 2

Thinking about a recent personal or professional project, consider what may have been direct and indirect costs of that project. Provide a brief summary of your project and identify each of the direct and indirect costs associated, providing an explanation for why they are direct or indirect. It is not necessary to provide the dollar amount of these costs, only the name of the costs and whether they are direct or indirect.

Discussion 3

Read the article  Solar Bait: How U.S. States Attract Solar Investments from Large Corporations . After reading, respond to the following:

1. Based on the “State Incentive Programs” explained on page 172 and Table 1 found on page 173 of the article, select a state and then identify two policies or programs listed for that state that encourage renewable energy generation in general and solar energy generation. Explain how these policies or programs can help you as a small business owner.

Solutions to Global Issues (5-7 sentences)

Discussion 1

Briefly, what nonrenewable natural resources are most at risk of depletion?

Discuss some sustainable development models that have broad applicability to the needs and consumption demands of both developing and developed countries.

Discussion 2

Chapter 2, “Wealth and Poverty,” in your textbook discusses the Millennium Development Goals, which were created to provide developing countries support through the partnership of developed countries. The first goal is to “eradicate extreme poverty and hunger” in the world.

According to the textbook, population is still increasing in the world’s poorest regions. Take a look at  The Millennium Development Goals Report [PDF] .

The report notes that progress in reducing extreme hunger is uneven across regions of the world. Looking at the graph on page 21 of the report, which regions have the least reduction in extreme hunger? Which regions have the greatest reduction in extreme hunger? What factors contribute to this uneven progress? What are some possible strategies for creating more progress in these regions of the world?