Managemt 7100 Accounting For Managers: Assessment Answers

2.

Contribution is the earnings that is available after all the direct costs have been subtracted from revenue. The remainder that is available is called contribution. Fixed costs when deducted from the contribution is called profit. The contribution concept is usually mentioned to as involvement or contribution margin, which is the remaining amount divided by incomes. It is easier to assess contribution on a proportion basis, to see if there are variations in the proportion of contribution to revenues over a period of time. Contribution is actually based on accrual basis of accounting , therefore we can conclude that the costs  that are actually related to the revenues are actually identified in the same period as revenues. (Accounting tools, 2017)

It is useful in actually many ways

Pricing : Special pricing contracts should be intended to yield some sum of contribution; otherwise a business is fundamentally losing cash every time it makes a  sale.

Helps in fixing of capital expenditure: It helps in fixing of capital expenditure , like in case of robot. If a robot is installed there will be low labor costs but high fixed costs will be there

Helps in Budgeting: The organization team can use approximations of sales, undeviating costs, and secure costs to predict  revenue levels in future ages.

A shared consequence of influence analysis is an augmented sympathetic of the amount of units of creation that must be vended in order to provision an incremental upsurge in fixed costs. This information can be castoff to drive down immovable costs or upsurge the influence margin on produce sales, which will lead to increase in profits.

Break even analysis. :Break even analysis is actually a very strong tools for company or indivuals having a startup reach-even examination involves the scheming and inspection of the margin of safety for incorporation based on the revenues composed and associated costs. Break-even examination looks at the flat of fixed prices comparative to the profit earned by each added unit shaped and wholesaled. In overall, a business with lower fixed expenses will automatically have break-even point of sale. Breakeven is actually determined by two factors  expected revenue and all  the project costs. Revenue is actually much more effected by the demand of the market

The usefulness of breakeven analysis are

 It tells us how much output is required actually

He understand the position of the business ,its viability (Business , 2017)

It tells us the merging of safety concept and due to this sales forecast can demonstrate over-optimistic before losses are found.

Helps entrepreneur recognize the level of risk involved in a start-up

It gives really quick estimates of anything and everything and helps in decision making

3. Limitations of breakeven analysis

Impractical expectations – products are not vended at the same worth at dissimilar levels of production; fixed budgets or expenses  do vary when there is a change in output (Kokemullar, 2017)

Sales are not same as output – there are actually some stocks that are build up and wasted too.

Variable expenditures do not continuously stay the same. For specimen, as output rises, the commercial may be getting advantage from being able to buy inputs at lower charges (buying influence), which would diminish variable charge per unit.

Most productions who actually sells more than one product, so break-even for the professional get harder to calculate

Break-even analysis should be seen as a planning aid rather than a decision-making tool (Business, 2017)

4.

Analysing the reports of FMCG the factors that influence the breakeven prices are

The break-even point for any corporation describes the situations at which the revenue generated from products and amenities which actually equals the total costs that have been put in to the business.

Breakeven is actually determined by two factors  expected revenue and all  the project costs. Revenue is actually much more effected by the demand of the market. People will actually demand the product and  it will actual lead to more sales and actual yet will lead to coroner recovery  of costs.

The three major influencers are  business that needs only $10,000 to jump has a much healthier chance to reach breakeven point sooner than the ones wanting more money

Startup costs

business that needs only $10,000 to jump has a much healthier chance to reach breakeven point sooner than the ones wanting more money

Variable and fixed costs

Variable costs are the costs that changes with  the level of the activity and changes with the level of output and in case of fixed costs it remain the same irrespective of the activity. High adjustable costs mean you have to sell a high capacity of goods or facilities to earn enough gross income to cover secure costs and then startup costs are paid off (Davi, 2017)

In FMCG  Net income after tax for FY16 was US$985 million with the optimistic contribution from reduction of the expenditure  more than offsetting the effect of the lower iron ore price compared to FY15 (2015 Annual report, 2017)

5.

The Iron Ore Mining manufacturing’s income is expected to reduction at an yearly 4.1%, to $59.7 billion over the five years through 2016-17. Early in the retro, strong financial development in China augmented iron ore mining growth and herd greater steel production

The spectacular drop in iron ore instant to below $US45 a ton has actually put the  sector's manufacture submerged, and puts the "third force" in Pilbara iron ore, Fortes cue Metals Group, under new pressure. 

Majors BHP Billiton and Rio Tinto break even at an iron ore price of about $US31 to $US32 a ton so are making good profits. Fortes cue says its breakeven is $US39 a ton, so it is manufacturing decent cash, but some forecasters argument that figure, with UBS putting it at $US44

The brutal fall of 10.1 per cent overnight on Wednesday to a fresh six-year low of $US44.59 a ton, puts manufacture for greatest of the sector in the bloodshot. 

Atlas Iron, which is annoying $180 million company-saving capital raising this week, is one of the subordinates most at risk at present price (Ibis Report , 2017)

Its breakeven is $US52.50 to $US53.50 - but the miner has said that should fall to $US50 by December

References

2015 Annual report (2017).FMCG [online] Available at: file:///C:/Users/com/Downloads/1490674_172893643_1953-89fmg-2015-annual-report.pdf [Accessed  4^TH June. 2017]

Ibis world  (2017).Iron ore mining in Australia[online] Available at: file:///C:/Users/com/Downloads/1489561_2059820364_IBISIronOreMininginAustraliaIn%20(3).pdf [Accessed  4^TH June. 2017]

Business  (2017) Break even analysis[online] Available at: https://www.tutor2u.net/business/reference/breakeven-analysis-strengths-and-limitations [Accessed  4^TH June. 2017]

Kokemullar , N(2017).Company breakeven point[online] Available at: https://smallbusiness.chron.com/affects-companys-breakeven-point-66092.html [Accessed  4^TH June. 2017]

Accounting tools N(2017).Contribution[online] Available at: https://www.accountingtools.com/articles/what-is-contribution.html [Accessed  4^TH June. 2017]

David , J(2017).Fixed cost and variable cost[online] Available at: https://businessecon.org/2015/01/fixed-and-variable-costs-in-a-restaurant/ [Accessed  4^TH June. 2017]

Accounting coach(2017).What is cost behqaviour[online] Available at: https://www.accountingcoach.com/blog/what-is-cost-behavior [Accessed  4^TH June. 2017]