CASE 30 (Chapter7)_SALES COMBINED_Questions

2016 2017
Product A
Sales 400,000.00 500,000.00
Production Costs 160,000.00 200,000.00
Commercial Costs 40,000.00 60,000.00

Product B
Sales 500,000.00 520,000.00
Production Costs 300,000.00 312,000.00
Commercial Costs 45,000.00 52,000.00

Product C
Sales 600,000.00 380,000.00
Production Costs 480,000.00 304,000.00
Commercial Costs 48,000.00 19,000.00

Fixed Costs 300,000.00 310,000.00

Result 127,000.00 143,000.00

1) CALCULATE & INTERPRET THE SALES COMBINATION OF BOTH YEARS:

2016
Commercial
Products Sales Production Costs %
Costs
A 400,000.00 160,000.00 40% 40,000.00
B 500,000.00 300,000.00 60% 45,000.00
C 600,000.00 480,000.00 80% 48,000.00
Total 1,500,000.00
Fixed Costs
Result

2017
Commercial
Products Sales Production Costs %
Costs
A 500,000.00 200,000.00 40% 60,000.00
B 520,000.00 312,000.00 60% 52,000.00
C 380,000.00 304,000.00 80% 19,000.00
Total 1,400,000.00
Fixed Costs
Result

Products Sales Production Costs % Commercial

Costs
Product A 2016 400,000.00 160,000.00 40% 40,000.00
Product A 2017 500,000.00 200,000.00 40% 60,000.00
Product A Differences 100,000.00 40,000.00 20,000.00
Product B 2016 500,000.00 300,000.00 60% 45,000.00
Product B 2017 520,000.00 312,000.00 60% 52,000.00
Product B Differences 20,000.00 12,000.00 7,000.00
Product C 2016 600,000.00 480,000.00 80% 48,000.00
Product C 2017 380,000.00 304,000.00 80% 19,000.00
Product C Differences -220,000.00 -176,000.00 -29,000.00
Total Differences -100,000.00 -124,000.00 -2,000.00
Summary:
Sales PREVIOUS YEAR 1,500,000.00 Margin P.YEAR 427,000.00
Sales Income CURRENT YEAR 1,400,000.00 Margin C. YEAR 453,000.00
-100,000.00 26,000.00
Comments:

2) CALCULATE THE BREAK-EVEN POINT OF BOTH YEARS:

Break-even point Year 2016 - 1,053,864.17 € Fixe
Break Even Point €=
Break-even point Year 2017 - 958,057.40 € Var
1-

Comments:

3) COMPARE EVOLUTION OF SALES VS EVOLUTION OF COSTS IN BOTH YEARS:

Sales Year 2016 1,500,000.00
Sales Year 2017 1,400,000.00
Decrease 100,000.00

Costs Year 2016 1,373,000.00

Costs Year 2017 1,257,000.00
Decrease 116,000.00

Comments:
2016
% Total Costs % Margins %

10% 200,000.00 50% 200,000.00 50%

9% 345,000.00 69% 155,000.00 31%
8% 528,000.00 88% 72,000.00 12%
1,073,000.00 71.53% 427,000.00 28%
-300,000.00
127,000.00

2017
% Total Costs % Margins %

12% 260,000.00 52% 240,000.00 48%

10% 364,000.00 70% 156,000.00 30%
5% 323,000.00 85% 57,000.00 15%
947,000.00 67.64% 453,000.00 32%
-310,000.00
143,000.00

% Total Costs % Margins %

10% 200,000.00 50% 200,000.00 50%

12% 260,000.00 52% 240,000.00 48%
60,000.00 40,000.00
9% 345,000.00 69% 155,000.00 31%
10% 364,000.00 70% 156,000.00 30%
 19,000.00 1,000.00
8% 528,000.00 88% 72,000.00 12%
5% 323,000.00 85% 57,000.00 15%
-205,000.00 -15,000.00
-126,000.00 26,000.00

Profits P. YEAR 127,000.00 Control 0

Profits C. YEAR 143,000.00 Control 0
16,000.00

Fixed Costs
Break Even Point €=
Variable Costs
1-
Sales
CASE 31 (Chapter7)_OPERATING LEVERAGE_Solution

OPERATING LEVERAGE

CASE A: CURRENT SITUATION

Unit Selling Price 18.0

Unit Variable Cost 12.0
Unit Contribution Margin 6.0
Fixed Costs 1,100,000

Break Even Point (Units) 183,333 units

Break Even Point (euros) 3,300,000 euros

SALES (Units) PROFITS (euros)

CASE A CASE B
150,000 -200,000 -3,520,000
183,333 0 -3,080,000
200,000 100,000 -2,860,000
250,000 400,000 -2,200,000
300,000 700,000 -1,540,000
350,000 1,000,000 -880,000
400,000 1,300,000 -220,000
416,667 1,400,000 0
450,000 1,600,000 440,000
500,000 1,900,000 1,100,000
550,000 2,200,000 1,760,000
600,000 2,500,000 2,420,000
650,000 2,800,000 3,080,000
700,000 3,100,000 3,740,000
750,000 3,400,000 4,400,000
800,000 3,700,000 5,060,000
850,000 4,000,000 5,720,000
900,000 4,300,000 6,380,000
TING LEVERAGE

CASE B: SITUATION AFTER INVESTMENT

Unit Selling Price 18.0 reduction:

Unit Variable Cost (reduction in 60%) 4.8
Unit Contribution Margin 13.2
Fixed Costs (increase in x5) 5,500,000 Fixed Co
Break Even Point Units=
Unit Selling Price - Un
Umbral de Rentabilidad - Units 416,667
Fixed Costs
Break Even Point €=
Variable Costs
Umbral de Rentabilidad - € 7,500,000 1-
Sales

UNITS x CONTRIBUTION MARGIN - FIXED COST

7,500,000 0 0
7,500,000 0
7,500,000 7,500,000 7,500,000
7,500,000
 new Variable:

Fixed Costs
k Even Point Units=
Unit Selling Price - Unit Variable Cost
Fixed Costs
ak Even Point €=
Variable Costs
1-
Sales
CASE 32 (Chapter7)_Return & FINANCIAL LEVERAGE_Question

INCOME STATEMENT BALANCE SHEET

CONCEPT € ASSETS € LIABILITIES €

Net Revenues 8,000.00
- Variable Costs -4,000.00 Fixed 4,000.00 Equity 3,000.00
CONTRIB. MARGIN 4,000.00 Current 1,000.00 External Funds l.t. 1,600.00
- Fixed Costs -1,000.00 External Funds s.t. 400.00
EBIT 3,000.00 Total 5,000.00 Total Pasivo 5,000.00
- Financial Expenses -180.00 0.00
EBT 2,820.00 Corporate Tax 30.00%
Cost of Debt 9.00%
- Tax Expenses…………. -846.00
NET INCOME……….. 1,974.00

1) ANALYSIS OF THE RETURN

ROI (ROA) "1 Term" Formula: ROI (ROA) "2 Terms" Formula:
ROI (ROA) Margin Rotation
EBIT / TOTAL ASSETS EBIT /SALES SALES / ASSETS

ROI (ROA) Margin Rotation = ROI (ROA)

60.0% 0.375 1.600 60.0%
0.000

ROE "1 Term" Formula: ROE "5 Terms" Formula:

ROE Margin Rotation Leverage Fiscal Effect
NET INCOME / EQUITY EBIT / SALES SALES / ASSETS ASSETS / EQUITY EBT / EBIT N. INCOME / EBT

ROE Margin Rotation Leverage Fiscal Effect = ROE

65.8% 0.375 1.600 1.667 0.940 0.700 65.8%
0.0000
Financial Leverage Effect…………… 1.567

2) HOW TO FINANCE THE INVESTMENT

INVESTMENT……………… 300.0 thousand euros
Depreciation……………… 20 years
Annual Rental Saving…. 54.0 thousand euros
Cost of Debt 9.00%
Corporate Tax 30.00% OPTION 1: CAPITAL INCREASE OPTION 2: LOAN

ASSETS LIABILITIES 1: with EQUITY LIABILITIES 2: with DEBT

Fixed Assets 4,300 Equity 3,300 Equity 3,000

Current Assets 1,000 Debt 2,000 Debt 2,300
Total 5,300 Total 5,300 Total 5,300
0.0 0.0

INCOME STATEMENT 1: with EQUITY INCOME STATEMENT 2: with DEBT

Net Revenue 8,000 Net Revenue 8,000
Cost of Goods Sold -4,000 Cost of Goods Sold -4,000
Contribution Margin 4,000 Contribution Margin 4,000
Fixed Costs -961 Fixed Costs -961
EBIT 3,039 EBIT 3,039
Financial Expenses -180 Financial Expenses -207
EBT 2,859 EBT 2,832
Taxes -858 Taxes -850
Net Income 2,001 Net Income 1,982

EBIT / TOTAL ASSETS ROI 57.34% ROI 57.34%

NET INCOME / EQUITY ROE 60.65% ROE 66.08%