ACCOUNTING AND FINANCIAL ENGINEERING - EXAMPLE 34.22 : An engineering company intends to produce a small piece of biochemical instrument for sales. Let A = overall fixed cost of production, B = variable cost of production per unit, C = selling price per unit, D = quantity of unit produced. Breakeven Analysis is used where revenue = cost. (a) Explain the role of Breakeven Analysis by using A, B, C and D. (b) Find the value of Contribution Margin in term of A, B, C and / or D. (c) At the breakeven point where revenue = cost, derive an equation of D as a function of A, B and C.
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Answer Posted / kangchuentat
ACCOUNTING AND FINANCIAL ENGINEERING - ANSWER 34.22 : (a) Breakeven Analysis examines the effect of volume (D) on revenue (DC), costs (DB + A) and profit [ DC - (DB + A) ]. (b) Contribution Margin = C - B. (c) When revenue = cost, then DC = DB + A, D (C - B) = A, D = A / (C - B). The answer is given by Kang Chuen Tat; PO Box 6263, Dandenong, Victoria VIC 3175, Australia; SMS +61405421706; chuentat@hotmail.com; http://kangchuentat.wordpress.com.
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