Planning Tools

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Planning Tools

• Breakeven Analysis
• Presentation by Roger Clery
• For CST 331

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Breakeven Analysis

• Three Variables
• 1 Cost
• 2 Quantity
• 3 Selling Price

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Costs

• Fixed Cost (FC)
• Variable Cost (VC)
• Note All cost are variable given enough time.
• Note 2 All cost are fixed in the short short time.

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Fixed Cost

• Rent
• Private leased telephone lines
• Executive Salaries
• Deprecation

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Variable Costs

• Change as quantity sold changes
• In the hot dog selling business
• Hot dogs
• Buns
• Mustered
• Relish
• Tomatoes
• Pickles
• Cucumbers

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Some other VCs

• Labor
• DDD Telephone service
• Packaging

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Example - Rogers Pizza Push Cart Sales Inc.
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Rent a cart from the Shopping Mall for 500 a
month

• covers cart with oven
• electricity
• space
• insurance

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Ingredients

• Dough
• Sauce
• Cheese
• Paper Box Napkins

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Ingredients

• Dough . . . . . . . . . . . . . . . 1.25
• Sauce . . . . . . . . . . . . . . . 1.00
• Cheese . . . . . . . . . . . . . . 2.25
• Paper Box Napkins . . . .50

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Ingredients

• Dough . . . . . . . . . . . . . . . 1.25
• Sauce . . . . . . . . . . . . . . . 1.00
• Cheese . . . . . . . . . . . . . . 2.25
• Paper Box Napkins . . . .50
• Total . . . . . . . . . . . . . . . . . 5.00

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- Rogers Pizza Push Cart Sales Inc.

• VC 5.00
• FC 500.00
• What does this look like?

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Rogers Pizza Push Cart Sales Inc. Breakeven Graph
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- Rogers Pizza Push Cart Sales Inc. Graph 1
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Rogers Pizza Push Cart Graph 2 Total Cost
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Rogers Pizza Push Cart Graph 2 Total Cost
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Rogers Pizza Push Cart Sales Inc. Sales Revenue
at 10 per Pizza
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Rogers Pizza Push Cart Sales Inc. Breakeven
Graph 10 each
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Rogers Pizza Push Cart Sales Inc. Breakeven Graph
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Rogers Pizza Push Cart Sales Inc. Breakeven Graph
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Rogers Pizza Push Cart Sales Inc. Breakeven Graph
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Rogers Pizza Push Cart Sales Inc. Breakeven by CM

• If Selling Price is 10 and Variable cost is 5
  then Contribution margin is 5.00
• SP 10
• VC 5
• subtract
• CM 5
• For Every Pizza sold it contributes (5) toward
  the fixed costs and profit

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Rogers Pizza Push Cart Sales Inc. Breakeven by CM

• FC 500
• divide by CM 5
• Breakeven 100 pizzas

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Breakeven Using a spreadsheet
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Up to this point the assumption is that the
revenue and price relation is linear
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Sales the first 9 days
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What to do ???
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New Lower Price 8
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Rogers Pizza Push Cart Sales Inc. Breakeven by CM

• If Selling Price is 8 and Variable cost is 5
  then Contribution margin is 3.00
• SP 8
• VC 5
• subtract
• CM 3
• For Every Pizza sold it contributes (3) toward
  the fixed costs and profit

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Rogers Pizza Push Cart Sales Inc. Breakeven by CM

• FC 500
• divide by CM 3
• Breakeven 167 pizzas

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Sales second 9 days
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Revenue Curve
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Maximum Revenue

• R Q S (R is Revenue, Q is Quantity sold, S
  Selling price)
• but Q 18 - S 1.5)
• so R S (18 - S1.5)
• R 18S - 1.5 S 2
• R -1.5S2 18S (f AX2BX C)
• 0 2-1.5S 18 (df/dx 2AX B)
• 0 -3S 18
• 3S 18
• S 6 6 maximizes Revenue

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Maximum Profit
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BE Telecom
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State Representative Mr. Wee Lie Much

• Needs 6 lines and 12 phones

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12 Phones using CENTREX

• 75 per phone per month

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PBX using 6 lines

• Cost PBX and Phones 1800
• Cost for 6 lines 30 per month per line

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Which is best?

• Depends on how long PBX will be in use
• Calculate CM per month
• 75 12 900
• 30 6 180
• CM 720
• 1800 divided by CM 2.5 months
• If Mr. Much will use the office for 3 months then
  he should by the PBX

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END