Scribd
Upload
31 views4 pages

DOL Demonstration Problem 2023

This document compares the break-even analysis of two companies: 1) A software company with high fixed costs of $500,000 and low variable costs of $4 per unit. Its break-even point is 19,230 units. 2) An online webshop with low fixed costs of $50,000 and higher variable costs of $25 per unit. Its break-even point is 10,000 units. The software company has a lower margin of safety of 31-47% compared to 64-73% for the online webshop due to its higher fixed costs structure.

Uploaded by

Zoltan Szarvas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
31 views4 pages

DOL Demonstration Problem 2023

This document compares the break-even analysis of two companies: 1) A software company with high fixed costs of $500,000 and low variable costs of $4 per unit. Its break-even point is 19,230 units. 2) An online webshop with low fixed costs of $50,000 and higher variable costs of $25 per unit. Its break-even point is 10,000 units. The software company has a lower margin of safety of 31-47% compared to 64-73% for the online webshop due to its higher fixed costs structure.

Uploaded by

Zoltan Szarvas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
You are on page 1/ 4

(a) A Software company with relatively high development costs and low additional variable costs

Selling price ($/u) 30

Variable cost ($/u) 4

Fixed costs ($) 500,000 Budget 28 000 units

Budget +/- 10% 20% 30%


Volume Volume Random
Break-Even Budget Volume 1 Volume 2 volume
Units sold (unit) 19,230.77 28,000 30,800 33,600 36,400

Sales revenue 576,923 840,000 924,000 1,008,000 1,092,000

- Variable costs -76,923 -112,000 -123,200 -134,400 -145,600

= Contribution 500,000 728,000 800,800 873,600 946,400

- Fixed costs -500,000 -500,000 -500,000 -500,000 -500,000

= Operating profit 0 228,000 300,800 373,600 446,400

Margin of safety (%) - 31% 38% 43% 47%

DOL (1) = Contribution / Operating margin - 3.19 2.66 2.34 2.12

DOL (2) = % change in op.income / % change is Sale - 319% 266% 234%


% change in sales - 10% 9% 8%

% change in operating income - 31.93% 24.20% 19.49%


= BEP = fixed costs / contribution /unit = 500 000 / (30-4) =
19230.77

95.8%
(a) On-line webshop with low fixed costs of operation
Selling price ($/u) 30

Variable cost ($/u) 25

Fixed costs ($) 50,000 Budget 28 000 units

Budget +/- 10% 20% 30%


Volume Volume Random
Break-Even Budget Volume 1 Volume 2 volume
Units sold (unit) 10,000 28,000 30,800 33,600 36,400

Sales revenue 300,000 840,000 924,000 1,008,000 1,092,000

- Variable costs -250,000 -700,000 -770,000 -840,000 -910,000

= Contribution 50,000 140,000 154,000 168,000 182,000

- Fixed costs -50,000 -50,000 -50,000 -50,000 -50,000

= Operating profit 0 90,000 104,000 118,000 132,000

Margin of safety (%) - 64% 68% 70% 73%

DOL (1) = Contribution / Operating margin - 1.56 1.48 1.42 1.38

DOL (2) = % change in op.income / % change is Sale - 156% 148% 142%


% change in sales - 10% 9% 8%

% change in operating income - 15.56% 13.46% 11.86%


47%

You might also like