CHAPTER 19 (FIN MAN); CHAPTER 4 (MAN) COST BEHAVIOR AND COST-VOLUME-PROFIT ANALYSIS

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1 (FIN MAN); CHAPTER 4 (MAN) COST BEHAVIOR AND COST-VOLUME-PROFIT ANALYSIS 1. Total variable costs change in proportion to changes in the level of activity. Unit variable costs remain the same regardless of the level of activity. 2. a. Variable costs b. Variable costs DISCUSSION QUESTIONS 3. Total fixed cost remains the same regardless of changes in the level of activity. Fixed cost per unit decreases as the activity level increases and increases as the activity level decreases. 4. Mixed costs are costs that have characteristics of both a variable and a fixed cost. The high-low method uses the highest and lowest activity levels and their related costs to estimate the variable cost per unit and the fixed cost. The total fixed cost does not change with changes in activity level. Thus, the difference in the total cost between the highest and lowest levels of activity is the change in the total variable cost. Dividing this difference by the difference in activity level is an estimate of the variable cost per unit. The fixed cost is then estimated by subtracting the total variable costs from the total costs for the level of activity. 5. a. No impact on the contribution margin. b. Income from operations would decrease. 6. A high contribution margin ratio, coupled with idle capacity, indicates a potential for increased income from operations if additional sales can be made. A large percentage of each additional sales dollar would be available, after providing for variable costs, to cover promotion efforts and to increase income from operations. Thus, a substantial sales promotion campaign should be considered in order to expand sales to maximum capacity and to take advantage of the low ratio of variable costs to sales. 7. Decreases in unit variable costs, such as a decrease in the unit cost of direct materials, will decrease the break-even point. 8. Austin Company had lower fixed costs and a higher percentage of variable costs to sales than did Hill Company. Such a situation resulted in a lower break-even point for Austin Company. 9. The individual products are treated as components of one overall enterprise product. These components are weighted by the sales mix percentages when determining the contribution margin. Therefore, the sales mix affects the contribution margin and thus the break-even point. 10. Operating leverage measures the relationship between a company s contribution margin and income from operations. The difference between contribution margin and income from operations is fixed costs. Thus, companies with high fixed costs will normally have a high operating leverage. Low operating leverage is normal for companies that are labor intensive, such as professional service companies, which have low fixed costs. It is computed as follows: Operating Leverage Contribution Margin Income from Operations 19-1

2 PRACTICE EXERCISES PE 19 1A (FIN MAN); PE 4 1A (MAN) a. $23 per unit ($700,000 $240,000) (30,000 units 10,000 units) b. $10,000 $700,000 ($23 30,000 units), or $240,000 ($23 10,000 units) PE 19 1B (FIN MAN); PE 4 1B (MAN) a. $50 per unit ($440,000 $300,000) (5,500 units 2,700 units) b. $165,000 $440,000 ($50 5,500 units), or $300,000 ($50 2,700 units) PE 19 2A (FIN MAN); PE 4 2A (MAN) a. 37.5% ($80 $50) $80, or ($480,000 $300,000) $480,000 b. $30 per unit $80 $50 c. Sales $480,000 (6,000 units $80 per unit) Variable costs 300,000 (6,000 units $50 per unit) Contribution margin $180,000 (6,000 units $30 per unit) Fixed costs 50,000 Income from operations $130,000 PE 19 2B (FIN MAN); PE 4 2B (MAN) a. 20% ($30 $24) $30, or ($660,000 $528,000) $660,000 b. $6 per unit $30 $24 c. Sales $660,000 (22,000 units $30 per unit) Variable costs 528,000 (22,000 units $24 per unit) Contribution margin $132,000 (22,000 units $6 per unit) Fixed costs 40,000 Income from operations $ 92,

3 PE 19 3A (FIN MAN); PE 4 3A (MAN) a. 1,500 units $45,000 ($90 $60) b. 900 units $45,000 ($110 $60) PE 19 3B (FIN MAN); PE 4 3B (MAN) a. 1,600 units $48,000 ($75 $45) b. 960 units $48,000 ($95 $45) PE 19 4A (FIN MAN); PE 4 4A (MAN) a. 1,000 units $25,000 ($80 $55) b. 1,800 units ($25,000 + $20,000) ($80 $55) PE 19 4B (FIN MAN); PE 4 4B (MAN) a. 5,000 units $200,000 ($150 $110) b. 6,250 units ($200,000 + $50,000) ($150 $110) PE 19 5A (FIN MAN); PE 4 5A (MAN) Unit selling price of E: [($ ) + ($ )] $ Unit variable cost of E: [($ ) + ($ )] Unit contribution margin of E: $ Break-Even Sales (units) 12,000 units $510,000 $42.50 Break-Even Sales (units) for AA 12,000 units of E 70% 8,400 units of Product AA Break-Even Sales (units) for BB 12,000 units of E 30% 3,600 units of Product BB PE 19 5B (FIN MAN); PE 4 5B (MAN) Unit selling price of E: [($ ) + ($ )] $56.00 Unit variable cost of E: [($ ) + ($ )] Unit contribution margin of E: $24.00 Break-Even Sales (units) 4,375 units $105,000 $24.00 Break-Even Sales (units) for QQ 4,375 units of E 40% 1,750 units of Product QQ Break-Even Sales (units) for ZZ 4,375 units of E 60% 2,625 units of Product ZZ 19-3

4 PE 19 6A (FIN MAN); PE 4 6A (MAN) Contribution Margin $160,000 Operating Leverage Income from Operations $80,000 2 PE 19 6B (FIN MAN); PE 4 6B (MAN) Contribution Margin $450,000 Operating Leverage 1.5 Income from Operations $300,000 PE 19 7A (FIN MAN); PE 4 7A (MAN) Margin of Safety Margin of Safety Sales Sales at Break-Even Point Sales ($1,200,000 $960,000) $1,200,000 20% PE 19 7B (FIN MAN); PE 4 7B (MAN) Margin of Safety Sales Sales at Break-Even Point Sales Margin of Safety ($550,000 $385,000) $550,000 30% 19-4

5 EXERCISES Ex (FIN MAN); Ex. 4 1 (MAN) 1. Fixed 9. Fixed 2. Fixed 10. Variable 3. Variable 11. Variable 4. Variable 12. Mixed 5. Fixed 13. Variable 6. Variable 14. Variable 7. Variable 15. Mixed 8. Variable Ex (FIN MAN); Ex. 4 2 (MAN) a. Cost Graph Three d. Cost Graph Two b. Cost Graph Four e. Cost Graph Two c. Cost Graph One Ex (FIN MAN); Ex. 4 3 (MAN) 1. e 4. f 2. b 5. d 3. c 6. a Ex (FIN MAN); Ex. 4 4 (MAN) 1. e 2. f 3. c For 3. (c) is better than (b) because the administrative costs would be the same for expensive and inexpensive cars. 19-5

6 Ex (FIN MAN); Ex. 4 5 (MAN) a. Fixed g. Variable b. Fixed h. Variable c. Variable i. Fixed d. Fixed j. Variable e. Fixed* k. Variable f. Variable * The developer salaries are fixed because they are more variable to the number of titles or releases, rather than the number of units sold. For example, a title could sell one copy or a million copies, and the salaries of the developers would not be affected. Ex (FIN MAN); Ex. 4 6 (MAN) Components produced 400, , ,000 Total costs: Total variable costs $160,000 (d) $192,000 (j) $240,000 Total fixed costs 240,000 (e) 240,000 (k) 240,000 Total costs $400,000 (f) $432,000 (l) $480,000 Cost per unit: Variable cost per unit (a) $ 0.40 (g) $ 0.40 (m) $ 0.40 Fixed cost per unit (b) 0.60 (h) 0.50 (n) 0.40 Total cost per unit (c) $ 1.00 (i) $ 0.90 (o) $ 0.80 Supporting calculations: a. $0.40 ($160, ,000 units) b. $0.60 ($240, ,000 units) d. $192,000 ($ ,000) e. $240,000 (fixed costs do not change with volume) g. $0.40 ($192, ,000 units; variable costs per unit do not change with changes in volume) h. $0.50 ($240, ,000 units) j. $240,000 ($ ,000 units) k. $240,000 (fixed costs do not change with volume) m. $0.40 ($240, ,000 units; variable costs per unit do not change with changes in volume) n. $0.40 ($240, ,000 units) 19-6

7 Ex (FIN MAN); Ex. 4 7 (MAN) Difference in Total Costs a. Variable Cost per Unit Difference in Units Produced Variable Cost per Unit $690,000 $525,000 18,100 units 8,100 units Variable Cost per Unit $165,000 10,000 units $16.50 per unit The fixed cost can be determined by subtracting the estimated total variable cost from the total cost at either the highest or lowest level of production, as follows: Total Cost (Variable Cost per Unit Units Produced) + Fixed Costs Highest level: $690,000 ($ ,100 units) + Fixed Costs $690,000 $298,650 + Fixed Costs $391,350 Fixed Costs Lowest level: $525,000 ($ ,100 units) + Fixed Costs $525,000 $133,650 + Fixed Costs $391,350 Fixed Costs b. Total Cost (Variable Cost per Unit Units Produced) + Fixed Costs Total cost for 12,000 units: Variable cost: Units 12,000 Variable cost per unit $16.50 Total variable cost $198,000 Fixed costs 391,350 Total cost $589,

8 Ex (FIN MAN); Ex. 4 8 (MAN) Variable Cost per Gross-Ton Mile Variable Cost per Gross-Ton Mile Difference in Total Costs Difference in Gross-Ton Miles $1,750,000 $1,255, ,000 gross-ton miles 475,000 gross-ton miles Variable Cost per Gross-Ton Mile $495, ,000 gross-ton miles $1.80 per gross-ton miles The fixed costs can be determined by subtracting the estimated total variable cost from the total cost at either the highest or lowest level of gross-ton mile, as follows: Total Cost (Variable Cost per Gross-Ton Mile Gross-Ton Miles) + Fixed Costs Highest level: $1,750,000 ($ ,000 gross-ton miles) + Fixed Costs $1,750,000 $1,350,000 + Fixed Costs $400,000 Fixed Costs Lowest level: $1,255,000 ($ ,000 gross-ton miles) + Fixed Costs $1,255,000 $855,000 + Fixed Costs $400,000 Fixed Costs Ex (FIN MAN); Ex. 4 9 (MAN) a. Sales $2,750,000 Variable costs 1,760,000 Contribution margin $ 990,000 Contribution Margin Ratio Sales Variable Costs Sales Contribution $990,000 Margin Ratio $2,750,000 36% b. Sales Contribution margin ratio Contribution margin Less fixed costs Income from operations $1,450,000 40% $ 580, ,000 $ 224,

9 Ex (FIN MAN); Ex (MAN) a. Sales (in millions) $16,233 Variable costs (in millions): Food and packaging $ 5,300 Payroll 4,121 General, selling, and administrative expenses (40% $2,334) 934 Total variable costs $10,355 Contribution margin (in millions) $ 5,878 b. Contribution Margin Ratio Sales Variable Costs Sales $5,878 million Contribution Margin Ratio 36.2% $16,233 million c. Same-store sales increase (in millions) Contribution margin ratio (in millions) [from part (b)] Increase in income from operations (in millions) $811 million 36.2% $294 million Note to Instructors: Part (c) emphasizes same-store sales because of the assumption of no change in fixed costs. McDonald s will also increase sales from opening new stores. However, the impact on income from operations for these additional store sales would need to include an increase in fixed costs into the calculation. Ex (FIN MAN); Ex (MAN) a. Break-Even Sales (units) Fixed Costs $900,000 Break-Even Sales (units) 20,000 units $120 $75 b. Sales (units) Fixed Costs + Target Profit $900,000 + $112,500 Sales (units) $120 $75 22,500 units 19-9

10 Ex (FIN MAN); Ex (MAN) Total Cost Variable Cost Variable Cost (in millions) Percentage (in millions) Cost of goods sold $16, % $11,305.7 Selling, general and administrative 9, % 3,699.6 Total Cost Variable Cost Fixed Cost (in millions) (in millions) (in millions) Cost of goods sold $16,151.0 $11,305.7 $ 4,845.3 Selling, general and administrative 9, , ,549.4 Total fixed cost $10,394.7 Number of Total Amount Barrels Per Unit (in millions) (in millions) Amount Net sales $36, $ Variable cost of goods sold 11, Variable selling, general and 3, administrative a. Break-Even Sales (units) Fixed Costs Break-Even Sales (units) $10,394,700,000 2 $ $37.69 $ ,466,112 barrels The variable costs per unit are determined by multiplying the total amount of each cost by the variable cost percentage (70% for cost of goods sold and 40% for selling, general and administrative costs), then dividing by the number of barrels. 1 ($16,151,000,000 30%) + ($9,249,000,000) 60% 2 $36,297,000, ,000,000 3 ($16,151,000,000 70%) 300,000,000 4 ($9,249,000,000 40%) 300,000,000 b. Break-Even Sales (units) $10,394,700,000 + $350,000,000 $ $37.69 $ ,397,774 barrels Ex (FIN MAN); Ex (MAN) a. Break-Even Sales (units) Fixed Costs $460,000 Break-Even Sales (units) $125 $105 23,000 units b. Break-Even Sales (units) Fixed Costs $460,000 Break-Even Sales (units) 18,400 units $130 $

11 Ex (FIN MAN); Ex (MAN) Break-Even Sales (units) Fixed Costs Break-Even Sales (units) $4,000 $18 $X 2,000 units Variable cost per unit: $4,000 2,000 ($18 $X) Variable cost per unit: $4,000 2,000 units $18 $X Variable cost per unit: $2 $18 $X Variable cost per unit: $16 Ex (FIN MAN); Ex (MAN) The cost of the promotional campaign is the fixed cost in this analysis, since we re trying to determine the break-even adoption rate of the campaign. The contribution margin earned per new subscriber is essentially the revenue earned less the variable cost over the 12-month subscription period. Revenue: (12 mos. 2 free mos.) $10/mo. $100 per new account Variable cost: 12 mos. $6.25/mo. $75 per new account Note: The variable cost is for 12 months since the costs are incurred, even during the free months. The break-even number of subscribers necessary to cover the fixed cost of the promotion would be computed as follows: Break-Even Fixed Costs Contribution Margin per Unit Break-Even $2,500, ,000 accounts $100 $75 Therefore, if ESPN.com yielded more than 100,000 new subscribers out of the promotional campaign, the costs of the campaign would be covered

12 Ex (FIN MAN); Ex (MAN) Fixed Costs a. Break-Even Revenue per Account Variable Cost per Account Break-Even $16,510.5 million 1 $977.9 $ Break-Even 32.2 million (rounded) accounts 1 Revenue per account (in millions): $32,563 million 33.3 million $977.9 (rounded) 2 Variable cost per account (in millions, except variable cost per account): Cost of revenue $17,492 75% $13,119.0 Selling, general, and administrative expenses 9,418 25% 2,354.5 Total variable cost $15,473.5 Divided by number of accounts 33.3 Variable cost per account (rounded) $ Fixed costs (in millions): Cost of revenue $17,492 25% $ 4,373.0 Selling, general, and administrative expenses 9,418 75% 7,063.5 Depreciation 5, % 5,074.0 Total fixed costs $16,510.5 b. Break-Even Fixed Cost Revenue per Account Variable Cost per Account 33.3 million accounts 33.3X $15,474.5 $16,510.5 million X $464.7 $16,510.5 million 33.3X $31,985.0 X $960.5 (rounded) Note to Instructors: The rate charged per minute and the number of average minutes of digital service influence the revenue per account. An interesting question is whether the costs are variable to the number of minutes or number of accounts. If we assume that the costs are variable to the number of minutes, then the break-even analysis revolves around the number of minutes. More likely, the costs are more variable to the number of accounts for this business (mostly customer acquisition and service costs), while the variable cost per minute is likely to be small

13 Ex (FIN MAN); Ex (MAN) a. $2,500,000 $2,000,000 Break- Even Point Total Sales Line Operating Profit Area Sales and Costs $1,500,000 $1,000,000 $600,000 $500,000 $0 Operating Loss Area 0 4,000 8,000 12,000 16,000 20,000 Units of Sales Total Costs b. $1,500,000 (the intersection of the total sales line and the total costs line) c. The graphic format permits the user (management) to visually determine the break-even point and the operating profit or loss for any given level of sales

14 Ex (FIN MAN); Ex (MAN) a. $600,000 (total fixed costs) b. Sales (20,000 units $125) $2,500,000* Fixed costs $ 600,000 Variable costs (20,000 units $75) 1,500,000 2,100,000 Income from operations $ 400,000 * 20,000 units $2,500,000 maximum sales/$125 unit selling price c. $400,000 $300,000 Profit Line Operating Profit (Loss) $200,000 $100,000 $0 ($100,000) ($200,000) ($300,000) ($400,000) Operating Loss Area Break-Even Point Operating Profit Area ($500,000) ($600,000) 0 5,000 10,000 12,000 15,000 20,000 Units of Sales d. 12,000 units (the intersection of the profit line and the horizontal axis) Ex (FIN MAN); Ex (MAN) Cost-volume-profit chart a. break-even point d. total costs line b. operating loss area e. operating profit area c. total fixed costs f. total sales line 19-14

15 Ex (FIN MAN); Ex (MAN) Profit-volume chart a. break-even point b. total fixed costs c. operating loss area d. maximum operating profit e. profit line f. operating profit area Ex (FIN MAN); Ex (MAN) a. Unit Selling Price of E ($90 40%) + ($105 60%) Unit Selling Price of E $36 + $63 $99 Unit Variable Cost of E ($50 40%) + ($65 60%) Unit Variable Cost of E $20 + $39 $59 of E $99 $59 $40 Break-Even Sales (units) Fixed Costs $620,000 Break-Even Sales (units) 15,500 units $40 b. 6,200 units of baseball bats (15,500 units 40%) 9,300 units of baseball gloves (15,500 units 60%) 19-15

16 Ex (FIN MAN); Ex (MAN) a. Unit contribution margin of overall product (E): Unit selling price of E [(20% $1,000) + (80% $200)] $360 Unit variable cost of E [(20% $100) + (80% $75)] 80 Unit contribution margin of E $280 Fixed costs of the New York City to George Town, Grand Cayman round-trip flight: Fuel $10,400 Flight crew salaries 4,300 Depreciation 10,500 Total fixed costs $25,200 Break-even sales (units) of overall product: Break-Even Sales (units) Fixed Costs Break-Even Sales (units) $25, seats (tickets) $280 per seat b. Business class break-even (90 seats 20%) 18 seats Economy class break-even (90 seats 80%) 72 seats Total break-even 90 seats Ex (FIN MAN); Ex (MAN) a. (1) Margin of Safety (dollars) Sales Sales at Break-Even Point Margin of Safety (dollars) $880,000 $660,000 $220,000 (2) Margin of Safety (percentage) Margin of Safety (percentage) $220,000 $880,000 25% Sales Sales at Break-Even Point Sales b. The break-even point (S) is determined as follows: Break-Even Sales (dollars) Total Fixed Costs + Total Variable Costs (at Break-Even) Break-Even Sales (dollars) Total Fixed Costs + 60% Break-Even Sales (dollars) Break-Even Sales (dollars) $2,325, % Break-Even Sales (dollars) Break-Even Sales (dollars) 60% Break-Even Sales (dollars) $2,325,000 40% Break-Even Sales (dollars) $2,325,000 Break-Even Sales (dollars) $5,812,500 If the margin of safety is 25%, the actual sales are determined as follows: Sales Break-Even Sales (dollars) + (Sales Margin of Safety) Sales (dollars) $5,812, % Sales Sales 25% Sales $5,812,500 75% Sales $5,812,500 Sales $7,750,

17 Ex (FIN MAN); Ex (MAN) If 420,000 units are sold and sales at the break-even point are 472,500 units, there is no margin of safety. Ex (FIN MAN); Ex (MAN) a. Beck Inc.: Contribution Margin Operating Leverage Income from Operations Operating Leverage $500,000 $100, Bryant Inc.: Operating Leverage Contribution Margin Income from Operations $750,000 Operating Leverage 2.5 $300,000 b. Beck Inc. s income from operations would increase by 100% (5.0 20%), or $100,000 (100% $100,000), and Bryant Inc. s income from operations would increase by 50% (2.5 20%), or $150,000 (50% $300,000). c. The difference in the increases of income from operations is due to the difference in the operating leverages. Beck Inc. s higher operating leverage means that its fixed costs are a larger percentage of contribution margin than are Bryant Inc. s. Thus, increases in sales increase operating profit at a faster rate for Beck Inc. than for Bryant Inc. Appendix Ex (FIN MAN); Appendix Ex (MAN) a. Variable cost of goods sold b. Variable selling and administrative expenses c. Fixed costs 19-17

18 Appendix Ex (FIN MAN); Appendix Ex (MAN) a. RHYS COMPANY Income Statement Variable Costing For the Month Ended July 31, 2014 Sales $4,440,000 Variable cost of goods sold: Variable cost of goods manufactured $2,988,000 Less ending inventory (24,000 units $24.90) 597,600 Variable cost of goods sold 2,390,400 Manufacturing margin $2,049,600 Variable selling and administrative expenses 115,200 Contribution margin $1,934,400 Fixed costs: Fixed manufacturing costs $ 132,000 Fixed selling and administrative expenses 172, ,800 Income from operations $1,629,600 Computations: Variable cost of goods manufactured: $3,120,000 $132,000 $2,988,000 Units Sold Units Manufactured Units in Ending Inventory 96,000 Units Manufactured 24, ,000 Units Manufactured Unit cost of ending inventory: Variable cost of goods manufactured per unit: $2,988, ,000 units manufactured $24.90 Thus, variable cost of goods sold could alternatively be calculated: $2,390,400 96,000 units $24.90/unit Fixed selling and administrative expenses: $288,000 $115,200 $172,800 b. Absorption costing income from operations $1,656,000 Variable costing income from operations 1,629,600 Difference. $ 26,400 Note: The difference between the two income numbers can be reconciled as follows: Unit change in inventory 24,000 units Fixed manufacturing cost per unit $1.10 ($132, ,000 units) Income from operations difference $26,

19 Appendix Ex (FIN MAN); Ex (MAN) a. TUDOR MANUFACTURING CO. Income Statement Absorption Costing For the Month Ended June 30, 2014 Sales $7,450,000 Cost of goods sold: Cost of goods manufactured (500,000 units $14.32) $7,160,000 Less ending inventory (80,000 units $14.32) 1,145,600 Cost of goods sold 6,014,400 Gross profit $1,435,600 Selling and administrative expenses ($80,000 + $75,000) 155,000 Income from operations $1,280,600 Computations: Cost of goods manufactured: $7,000,000 + $160,000 $7,160,000 Unit cost of ending inventory: Total cost of goods manufactured: $7,160, ,000 units manufactured $14.32 Variable costing income from operations $1,255,000 Absorption costing income from operations 1,280,600 Difference $ 25,600 b. Note: The difference between the two income numbers can be reconciled as follows: Unit change in inventory 80,000 units Fixed manufacturing cost per unit $0.32 ($160, ,000 units) Income from operations difference $25,

20 Prob. 19 1A (FIN MAN); Prob. 4 1A (MAN) PROBLEMS Fixed Variable Mixed Cost Cost Cost Cost a. X b. X c. X d. X e. X f. X g. X h. X i. X j. X k. X l. X m. X n. X o. X p. X q. X r. X s. X t. X 19-20

21 Prob. 19 2A (FIN MAN); Prob. 4 2A (MAN) 1. Variable Variable Total Cost Cost Percentage Cost Cost of goods sold $6,200,000 60% $3,720,000 Selling expenses 3,400,000 75% 2,550,000 Administrative expenses 1,550,000 60% 930,000 Variable Fixed Total Cost Cost Cost Cost of goods sold $6,200,000 $3,720,000 $2,480,000 Selling expenses 3,400,000 2,550, ,000 Administrative expenses 1,550, , ,000 Total cost $7,200,000 $3,950,000 Total Number Amount of Units Per Unit Net sales $16,800, ,000 $ Variable costs 7,200, , Contribution margin $ 9,600,000 $ a. $60 ($7,200, ,000 units) b. $80 ($140 $60) 3. Break-Even Fixed Costs Sales (units) Break-Even Sales (units) $3,950,000 49,375 units $80 per unit 4. Break-Even Sales (units) Fixed Costs Break-Even Sales (units) $3,950,000 + $1,250,000 $80 per unit 65,000 units 5. Sales (units) Fixed Costs + Target Profit Sales (units) $5,200,000 + $5,650,000 $80 per unit 135,625 units 6. Sales ($16,800,000 + $2,800,000) Less: Fixed costs $5,200,000 Variable costs (140,000* units $60) 8,400,000 Income from operations $19,600,000 13,600,000 $ 6,000,000 * ($2,800,000 $140) + 120, Present operating income Less additional fixed costs Income from operations $5,650,000 1,250,000 $4,400,

22 Prob. 19 2A (FIN MAN); Prob. 4 2A (MAN) (Concluded) 8. In favor of the proposal is the possibility of increasing income from operations from $5,650,000 to $6,000,000. However, there are many points against the proposal, including: a. The break-even point increases by 15,625 units (from 49,375 to 65,000). b. The sales necessary to maintain the current income from operations of $5,650,000 would be 135,625 units, or $2,187,500 (15,625 units $140) in excess of 2014 sales. c. If future sales remain at the 2014 level, the income from operations of $5,650,000 will decline to $4,400,000. The company should determine the sales potential if the additional product is produced and then evaluate the advantages and the disadvantages enumerated above, in light of these sales possibilities

23 Prob. 19 3A (FIN MAN); Prob. 4 3A (MAN) Total Fixed Costs 1. Break-Even Sales (units) Total Fixed Costs Unit Selling Price Unit Variable Cost Break-Even Sales (units) $480,000 $40* 12,000 units *$100 unit selling price $60 unit variable cost 2. Sales (units) Sales (units) Fixed Costs + Target Profit $480,000 + $240,000 $40 $720,000 $40 18,000 units 3. $2,000,000 Operating Profit Area Break-Even Point Sales and Costs $1,500,000 $1,200,000 $1,000,000 Sales Total Costs $500,000 Operating Loss Area $0 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 Units of Sales 4. Sales (16,000 $100) $1,600,000 Total fixed costs Total variable costs (16,000 $60) $480, ,000 1,440,000 Income from operations $ 160,

24 Prob. 19 4A (FIN MAN); Prob. 4 4A (MAN) 1. $700,000 $600,000 Operating Profit Area $500,000 Sales and Costs $400,000 $300,000 $250,000 Total Sales Total Costs $200,000 Break-Even Point $100,000 $75,000 $0 Break-Even Units: Operating Loss Area ,000 1,500 2,000 2,500 Units of Sales Break-Even Sales (units) Total Fixed Costs Total Fixed Costs Unit Selling Price Unit Variable Cost Break-Even (units) $75,000 $250 Unit Selling Price $175 Unit Variable Cost 1,000 units Break-Even Dollars: Contribution Margin Ratio Unit Selling Price Unit Selling Price Unit Variable Cost Unit Selling Price Contribution Margin Ratio $250 Unit Selling Price $175 Unit Variable Cost $250 Unit Selling Price 30% Break-Even (dollars) Total Fixed Costs Contribution Margin Ratio Break-Even (dollars) $75,000 30% $250,000 Break-Even (dollars) or 1,000 units $250 per unit $250,

25 Prob. 19 4A (FIN MAN); Prob. 4 4A (MAN) (Continued) 2. $625,000 $600,000 $512,500 $500,000 Operating Profit Area b. $425,000 $400,000. a. Sales and Costs $300,000 Total Sales Total Costs $200,000 Break-Even Point $100,000 $75,000 $0 Operating Loss Area ,000 1,500 2,000 2,500 Units of Sales Units sold: $500,000 $250 per unit 2,000 units a. b. 2,000 units 2,500 units Sales $500,000 $625,000 Variable costs $350,000 $437,500 Fixed costs 75,000 75,000 Total costs $425,000 $512,500 Income from operations $ 75,000 $112,

26 Prob. 19 4A (FIN MAN); Prob. 4 4A (MAN) (Continued) 3. $700,000 Operating Profit Area $600,000 $500,000 Break-Even Point Sales and Costs $400,000 $362,500 $300,000 Total Sales Total Costs $200,000 $108,750 $100,000 Operating Loss Area $ ,000 1,500 2,000 2,500 1,450 Units of Sales Break-Even Units: Break-Even Sales (units) Total Fixed Costs Break-Even (units) Total Fixed Costs Unit Selling Price Unit Variable Cost $75,000 + $33,750 $250 $175 1,450 units Break-Even Dollars: Contribution Margin Ratio Contribution Margin Ratio 30% Unit Selling Price Unit Selling Price Unit Variable Cost Unit Selling Price $250 Unit Selling Price $175 Unit Variable Cost $250 Unit Selling Price Break-Even (dollars) Total Fixed Costs Contribution Margin Ratio Break-Even (dollars) $75,000 + $33,750 30% $362,500 or Break-Even (dollars) 1,450 units $250 per unit $362,

27 Prob. 19 4A (FIN MAN); Prob. 4 4A (MAN) (Concluded) 4. $700,000 $625,000 $600,000 $546,250 Operating Profit Area b. $500,000 $458,750 a. Sales and Costs $400,000 $300,000 Total Sales Total Costs $200,000 $108,750 $100,000 $0 Operating Loss Area ,000 1,500 2,000 2,500 Units of Sales Break-Even Point a. b. 2,000 units 2,500 units Sales $500,000 $625,000 Variable costs $350,000 $437,500 Fixed costs 108, ,750 Total costs $458,750 $546,250 Income from operations $ 41,250 $ 78,

28 Prob. 19 5A (FIN MAN); Prob. 4 5A (MAN) (Overall product is labeled E.) 1. Unit Selling Price of E [($1,600 40%) + ($850 60%)] $1,150 Unit Variable Cost of E [($800 40%) + ($350 60%)] 530 of E $ 620 Break-Even Sales (units) Fixed Costs $2,498,600 Break-Even Sales (units) $620 per unit 4,030 units 2. 4,030 units of E 40% 1,612 units of laptops 4,030 units of E 60% 2,418 units of tablet PCs 3. Unit selling price of E [($1,600 50%) + ($850 50%)] $1,225 Unit variable cost of E [($800 50%) + ($350 50%)] 575 Unit contribution margin of E $ 650 Break-Even Sales (units) Fixed Costs $2,498,600 $650 3,844 units of E 50% 1,922 units of laptops 3,844 units of E 50% 1,922 units of tablet PCs 3,844 units The break-even point is lower in this scenario than in part (1) because the sales mix is weighted toward the product with the higher contribution margin per unit of product

29 Prob. 19 6A (FIN MAN); Prob. 4 6A (MAN) 1. WOLSEY INDUSTRIES INC. Estimated Income Statement For the Year Ended December 31, 2014 Sales (21,875 $160) $3,500,000 Cost of goods sold: Direct materials (21,875 $46) $1,006,250 Direct labor (21,875 $40) 875,000 Factory overhead [$200,000 + (21,875 $20)] 637,500 Cost of goods sold 2,518,750 Gross profit $ 981,250 Expenses: Selling expenses: Sales salaries and commissions [$110,000 + (21,875 $8)] $285,000 Advertising 40,000 Travel 12,000 Miscellaneous selling expense [$7,600 + (21,875 $1)] 29,475 Total selling expenses $366,475 Administrative expenses: Office and officers salaries $132,000 Supplies [$10,000 + (21,875 $4)] 97,500 Miscellaneous administrative expense [$13,400 + (21,875 $1)] 35,275 Total administrative expenses 264,775 Total expenses 631,250 Income from operations $ 350,

30 Prob. 19 6A (FIN MAN); Prob. 4 6A (MAN) (Continued) Sales Variable Costs 2. Contribution Margin Ratio Sales Contribution Margin Ratio $3,500,000 (21,875 $120) $3,500,000 $875,000 25% $3,500, Break-Even Sales (units) Fixed Costs Break-Even Sales (units) $525,000 $160 $120 13,125 units Break-Even Sales (dollars) Fixed Costs Contribution Margin Ratio $525,000 $2,100,000 25% Break-Even Sales (dollars) 13,125 units $160 per unit $2,100,

31 Prob. 19 6A (FIN MAN); Prob. 4 6A (MAN) (Concluded) 4. $4,500,000 Operating Profit Area $4,000,000 $3,500,000 Break-Even Point Sales and Costs $3,000,000 $2,500,000 $2,100,000 $2,000,000 Sales Total Costs $1,500,000 $1,000,000 $525,000 $500,000 Operating Loss Area $0 0 3,000 6,000 9,000 12,000 15,000 18,000 21,000 24,000 27,000 13,125 Units 5. Margin of safety: In dollars: Expected sales (21,875 $160) $3,500,000 Break-even point (13,125 $160) 2,100,000 Margin of safety $1,400,000 As a percentage of sales: Margin of Safety Sales Sales at Break-Even Point Sales Margin of Safety $1,400,000 $3,500,000 40% 6. Operating Leverage Contribution Margin Income from Operations Operating Leverage 21,875 units $40 $350,000 $875, $350,

32 Prob. 19 1B (FIN MAN); Prob. 4 1B (MAN) Fixed Variable Mixed Cost Cost Cost Cost a. X b. X c. X d. X e. X f. X g. X h. X i. X j. X k. X l. X m. X n. X o. X p. X q. X r. X s. X t. X 19-32

33 Prob. 19 2B (FIN MAN); Prob. 4 2B (MAN) 1. Total Variable Cost Variable Cost Percentage Cost Cost of goods sold $1,400,000 75% $1,050,000 Selling expenses 400,000 60% 240,000 Administrative expenses 387,500 80% 310,000 Total Variable Fixed Cost Cost Cost Cost of goods sold $1,400,000 $1,050,000 $350,000 Selling expenses 400, , ,000 Administrative expenses 387, ,000 77,500 Total cost $1,600,000 $587,500 Number Total Amount of Units Per Unit Net sales $2,880,000 64,000 $45.00 Variable costs 1,600,000 64, Contribution margin $1,280,000 $ a. $25 ($1,600,000 64,000 units) b. $20 ($45 $25) 3. Break-Even Fixed Costs Sales (units) Break-Even Sales (units) $587,500 29,375 units $20 per unit 4. Break-Even Sales (units) Fixed Costs Break-Even Sales (units) $587,500 + $212,500 $20 per unit 40,000 units 5. Sales (units) Fixed Costs + Target Profit Sales (units) $800,000 + $692,500 $20 per unit $1,492,500 $20 per unit 74,625 units 6. Sales ($2,880,000 + $900,000) Less: Fixed costs $ 800,000 Variable costs (84,000* units $25) 2,100,000 Income from operations $3,780,000 2,900,000 $ 880,000 * ($900,000 $45) + 64, Present operating income Less additional fixed costs Income from operations $692, ,500 $480,

34 Prob. 19 2B (FIN MAN); Prob. 4 2B (MAN) (Concluded) 8. In favor of the proposal is the possibility of increasing income from operations from $692,500 to $880,000. However, there are many points against the proposal, including: a. The break-even point increases by 10,625 units (from 29,375 to 40,000). b. The sales necessary to maintain the current income from operations of $692,500 would be 74,625 units, or $478,125 (10,625 units $45) in excess of 2014 sales. c. If future sales remain at the 2014 level, the income from operations of $692,500 will decline to $480,000. The company should determine the sales potential if the additional product is produced and then evaluate the advantages and the disadvantages enumerated above, in light of these sales possibilities

35 Prob. 19 3B (FIN MAN); Prob. 4 3B (MAN) Total Fixed Costs 1. Break-Even Sales (units) Total Fixed Costs Unit Selling Price Unit Variable Cost $800,000 Break-Even Sales (units) $40* *$150 unit selling price $110 unit variable cost 20,000 units 2. Sales (units) Sales (units) Total Fixed Costs + Target Profit $800,000 + $300,000 $40 per unit $1,100,000 $40 per unit 27,500 units 3. $7,000,000 Operating Profit Area $6,000,000 $5,000,000 Break-Even Point Sales and Costs $4,000,000 $3,000,000 Sales Total Costs $2,000,000 $1,000,000 $0 Operating Loss Area Units of Sales 4. Sales (32,000 $150) $4,800,000 Total fixed costs $ 800,000 Total variable costs (32,000 $110) 3,520,000 4,320,000 Income from operations $ 480,

36 Prob. 19 4B (FIN MAN); Prob. 4 4B (MAN) 1. $1,400,000 Operating Profit Area $1,200,000 $1,000,000 Sales and Costs $800,000 $600,000 Operating Loss Area Total Sales Total Costs $400,000 Break-Even Point $225,000 $200,000 $0 0 1,500 3,000 4,500 6,000 7,500 Break-Even Units: Break-Even Sales (units) Units of Sales Total Fixed Costs Break-Even (units) Total Fixed Costs Unit Selling Price Unit Variable Cost $225,000 $200 Unit Selling Price $125 Unit Variable Cost 3,000 units Break-Even Dollars: Contribution Margin Ratio Contribution Margin Ratio Unit Selling Price Unit Selling Price Unit Variable Cost Unit Selling Price $200 Unit Selling Price $125 Unit Variable Cost $200 Unit Selling Price 37.5% Break-Even (dollars) Total Fixed Costs Contribution Margin Ratio Break-Even (dollars) $225, % $600,000 or Break-Even (dollars) 3,000 units $200 per unit $600,

37 Prob. 19 4B (FIN MAN); Prob. 4 4B (MAN) (Continued) 2. $1,600,000 $1,500,000 $1,400,000 Operating Profit Area b. $1,200,000 $1,162,500 $1,000,000 Sales and Costs $900,000 $800,000 $787,500 $600,000 a. Total Sales Total Costs $400,000 Break-Even Point $225,000 $200,000 Operating Loss Area $0 0 1,500 3,000 4,500 6,000 7,500 Units of Sales a. b. 4,500 units 7,500 units Sales $900,000 $1,500,000 Variable costs $562,500 $ 937,500 Fixed costs 225, ,000 Total costs $787,500 $1,162,500 Income from operations $112,500 $ 337,

38 Prob. 19 4B (FIN MAN); Prob. 4 4B (MAN) (Continued) 3. $1,600,000 $1,400,000 $1,200,000 Break-Even Point Operating Profit Area $1,000,000 Sales and Costs $900,000 $800,000 $600,000 Total Sales Total Costs $400,000 $337,500 $200,000 Operating Loss Area $0 0 1,500 3,000 4,500 6,000 7,500 Units of Sales Break-Even Units: Break-Even Sales (units) Total Fixed Costs Break-Even (units) Total Fixed Costs Unit Selling Price Unit Variable Cost $225,000 + $112,500 $200 Unit Selling Price $125 Unit Variable Cost 4,500 units Break-Even Dollars: Contribution Margin Ratio Contribution Margin Ratio Unit Selling Price Unit Selling Price Unit Variable Cost Unit Selling Price $200 Unit Selling Price $125 Unit Variable Cost $200 Unit Selling Price 37.5% Break-Even (dollars) Total Fixed Costs Contribution Margin Ratio Break-Even (dollars) Break-Even (dollars) $225,000 + $112, % $900,000 or 4,500 units $200 per unit $900,

39 Prob. 19 4B (FIN MAN); Prob. 4 4B (MAN) (Concluded) 4. $1,600,000 $1,500,000 $1,400,000 $1,275,000 $1,200,000 $1,087,500 $1,000,000 Operating Profit Area a. b. Sales and Costs $800,000 $600,000 Total Sales Total Costs $400,000 $337,500 Break-Even Point $200,000 Operating Loss Area $0 0 1,500 3,000 4,500 6,000 7,500 Units of Sales a. b. 6,000 units 7,500 units Sales $1,200,000 $1,500,000 Variable costs $ 750,000 $ 937,500 Fixed costs 337, ,500 Total costs $1,087,500 $1,275,000 Income from operations $ 112,500 $ 225,

40 Prob. 19 5B (FIN MAN); Prob. 4 5B (MAN) (Overall product is labeled E.) 1. Unit Selling Price of E [($12 30%) + ($15 70%)] $14.10 Unit Variable Cost of E [($3 30%) + ($4 70%)] 3.70 of E $10.40 Break-Even Sales (units) Fixed Costs Break-Even Sales (units) $46,800 $10.40 per unit 4,500 units 2. 4,500 units of E 30% 1,350 units of 12-inch pizza 4,500 units of E 70% 3,150 units of 16-inch pizza 3. Unit selling price of E [($12 50%) + ($15 50%)] $13.50 Unit variable cost of E [($3 50%) + ($4 50%)] 3.50 Unit contribution margin of E $10.00 Break-Even Sales (units) Fixed Costs $46,800 $ ,680 units 4,680 units of E 50% 2,340 units of 12-inch pizza 4,680 units of E 50% 2,340 units of 16-inch pizza The break-even point is higher in scenario 2 because the mix changes to be less weighted toward the higher contribution margin per unit product in part (3)

41 Prob. 19 6B (FIN MAN); Prob. 4 6B (MAN) 1. BELMAIN CO. Estimated Income Statement For the Year Ended December 31, 2014 Sales (12,000 $240) $2,880,000 Cost of goods sold: Direct materials (12,000 $50) $600,000 Direct labor (12,000 $30) 360,000 Factory overhead [$350,000 + (12,000 $6)] 422,000 Cost of goods sold 1,382,000 Gross profit $1,498,000 Expenses: Selling expenses: Sales salaries and commissions [$340,000 + (12,000 $4)] $388,000 Advertising 116,000 Travel 4,000 Miscellaneous selling expense [$2,300 + (12,000 $1)] 14,300 Total selling expenses $522,300 Administrative expenses: Office and officers salaries $325,000 Supplies [$6,000 + (12,000 $4)] 54,000 Miscellaneous administrative expense [$8,700 + (12,000 $1)] 20,700 Total administrative expenses 399,700 Total expenses 922,000 Income from operations $ 576,

42 Prob. 19 6B (FIN MAN); Prob. 4 6B (MAN) (Continued) Sales Variable Costs 2. Contribution Margin Ratio Sales Contribution Margin Ratio $2,880,000 (12,000 $96) $2,880,000 $1,728,000 $2,880,000 60% 3. Break-Even Sales (units) Fixed Costs Break-Even Sales (units) $1,152,000 $240 $96 8,000 units Break-Even Sales (dollars) Fixed Costs Contribution Margin Ratio $1,152,000 $1,920,000 60% Break-Even Sales (dollars) 8,000 units $240 per unit $1,920,

43 Prob. 19 6B (FIN MAN); Prob. 4 6B (MAN) (Concluded) 4. $4,500,000 Operating Profit Area $4,000,000 $3,500,000 Break-Even Point Sales and Costs $3,000,000 $2,500,000 $2,000,000 $1,920,000 Sales Total Costs $1,500,000 $1,152,000 $1,000,000 $500,000 Operating Loss Area $0 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 Units 5. Margin of safety: In dollars: Expected sales (12,000 units $240) $2,880,000 Break-even point (8,000 units $240) 1,920,000 Margin of safety $ 960,000 As a percentage of sales: Margin of Safety Sales Sales at Break-Even Point Sales Margin of Safety $960,000 $2,880, % 6. Operating Leverage Contribution Margin Income from Operations Operating Leverage 12,000 units $144* $576,000 $1,728,000 3 $576,000 * Unit Contribution Unit Selling Price Unit Variable Cost $144 $240 $

44 CASES & PROJECTS CP 19 1 (FIN MAN); CP 4 1 (MAN) In an absolute sense, Edward s actions are devious. He is clearly attempting to use the first four-year scenario, which is favorable, as a way to market the partnerships. They are really longer-term investments. After the first four years, the risk increases dramatically. The break-even occupancy becomes much more difficult to achieve at 95% than it does at 65%. Focusing on the 65% and remaining silent about the increase to 95% is deceptive. One might argue let the buyer beware. After all, the information is in the fine print. A little spadework would reveal the longer-term reality of these partnerships. This is not a compelling argument. Clearly, Edward is putting some favorable spin on this offering. It s likely that this will come back to haunt him in a court of law. Some investors may claim they were defrauded by less than complete disclosure. Edward has a responsibility to provide objective information. The integrity standard requires that Edward communicate constraints that would preclude the successful performance of an activity. Also, Edward must communicate unfavorable as well as favorable information. Clearly, the increase in the mortgage rate and its impact on the break-even point is unfavorable information that should be given as much visibility as the favorable 65% break-even information

45 CP 19 2 (FIN MAN); CP 4 2 (MAN) The airline industry has a high operating leverage. This means that fixed costs are a large part of the cost structure. The break-even volume is apparently around 65% of capacity. When the volume falls below 65%, the industry loses money. As the percentage increases above 65%, the industry becomes very profitable. There is a difference between profitability and cash flow. Since a large part of the cost structure in airlines is fixed costs, this means that depreciation makes up a large part of the expense base. Depreciation is a noncash expense. Therefore, it is likely that the industry is not profitable but has positive cash flow at capacity use that is below break-even. There is a point, however, where the industry will not generate sufficient cash to maintain operations. The airline strategy of raising ticket prices and consolidating routes may be a successful strategy; however, there are a number of considerations. First, the higher ticket prices would increase the revenue per passenger-mile and reduce the break-even occupancy percentage only if it is assumed that there is no change in passenger volume. However, this is unlikely. The revenue from price increases would need to increase faster than the lost revenue from lower traffic volume for a price increase to lower break-even. To raise ticket prices, the airline would have to minimize the impact on lost volume. This might be possible for fare increases targeted to business travelers that need to fly, regardless of ticket price. The airline can minimize volume losses by keeping fares lower for nonbusiness travelers. Restrictions such as allowing reduced fares only on round-trip fares that go over a Saturday night achieve this objective, since business travelers do not wish to be out of town over the weekend. Likewise, requiring higher fares for seats reserved with little advance notice would also achieve this objective, since much business travel cannot be planned weeks in advance. The strategy of consolidating routes attacks a major cost of airlines. The number of flights and terminals served drives fuel and airport ground- and terminal-related costs. Therefore, consolidating routes by either reducing the number of terminals served and/or the number of flights is a method of achieving some economies of scale. For example, an airline could consolidate three flights departing in the morning from Tulsa to Dallas into just two flights departing in the morning. This would reduce the airline s costs but would increase the airline passengers inconvenience. This strategy works only if there is little loss in revenue by going to two flights, meaning that the people bumped from the third flight go to the other two, rather than a competitor. Alternatively, an airline flying into LaGuardia and Newark airports in the New York metropolitan area might decide to fly into only one of the terminals in order to reduce ground-related costs. Again, this strategy would only be successful if there was little loss in revenue relative to the cost savings

46 CP 19 3 (FIN MAN); CP 4 3 (MAN) Do-Nothing Strategy: Revenue Variable Costs Fixed Costs Profit ($80 1,000,000) ($35 1,000,000) $35,000,000 Profit $80,000,000 $35,000,000 $35,000,000 $10,000,000 Thomas s Strategy: Revenue Variable Costs Fixed Costs Profit ($60 2,000,000) ($35 2,000,000) $35,000,000 Profit $120,000,000 $70,000,000 $35,000,000 $15,000,000 James s Strategy: Revenue Variable Costs Fixed Costs Profit ($80 1,400,000) ($35 1,400,000) $45,000,000 Profit $112,000,000 $49,000,000 $45,000,000 $18,000,000 James s strategy, which is to maintain the price but increase advertising, appears superior. CP 19 4 (FIN MAN); CP 4 4 (MAN) The direct labor costs are not variable to the increase in unit volume. The unit volume is the wrong activity base for direct labor costs. The number of impressions is a more accurate reflection of the direct labor cost. An impression is a separate printing color application on the banners. Thus, the analysis should be done as follows: One Two Three Four Color Color Color Color Total Number of banners ,800 Number of impressions ,848 2,792 5,400 Last year s impressions: 1,800 ( ,140) Total increase: 5,400 1,800 1, % Thus, a 125% assumed increase from the unit volume information will understate the potential increase in direct labor cost

47 CP 19 5 (FIN MAN); CP 4 5 (MAN) The Shipping Department manager should respond by pointing out that the activities performed by his department are not related to sales volume but to sales orders. The orders require inventory pulling and sorting activities as well as paperwork activities. Thus, even though the sales volume is decreasing, the number of sales orders processed has increased from 1,180 to 1,475 (25%) over the last eight months. The reason for this increase in sales orders is that customers are ordering lower quantities per order than in the past. Thus, it is no wonder that the Shipping Department manager is experiencing financial pressure. The amount of work performed by the department is increasing, even though sales volume is down. CP 19 6 (FIN MAN); CP 4 6 (MAN) There are many possible applications of break-even analysis in a school environment. Below are just a few possible ideas. Break-Even Analysis Revenue Fixed Costs Variable Costs 1 Break-even number Student tuition Faculty salary, space Supplies, copying of students in a class for a class costs 2 Break-even sales Book sales Manager s salary, Cashier salaries, in the bookstore space costs cost of books 3 Break-even daily Meal revenue Salaries, space Food costs meal revenues 4 Break-even students Room revenue Space, staff salaries, Janitorial costs in a dorm utilities 5 Break-even number Ticket and Space, staff Clean-up costs, of tickets sold for a concession salaries, utilities concession costs basketball game revenue 6 Break-even number Network user fees Network depreciation, User support, of users on a computer network maintenance, electricity network trunk line lease costs 7 Break-even number Ticket revenue Concert hall Salaries of some of tickets sold for a depreciation, salaries of support staff, very concert season musicians, utilities few variable costs expense 19-47

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