Budgeting & Cost Control

HHH Appliance Assignment 6 - What if analysis (Cost Volume Profit Analysis)

Directions: The bank is requiring HHH to evaluate what happens if sales are higher or lower than the January actuals.This analysis is called cost, volume, profit analysis.In order to predict what will happen when sales change, the business must first determine what expenses are fixed vs. variable.Since we are using the January actuals, we will assume that the only variable cost for the month is the cost of goods sold (COGS).All other expenses are considered fixed and will not change if the sales level changes.

In addition, the bank has asked you to calculate the break-even point and margin of safety for the actual results in January.Please use the following equations:

Contribution Margin (CM) = Net Sales - Variable Costs

Contribution Margin % = CM/Net Sales

Break-even point (BEP) in dollars = Fixed Costs/CM%

Margin of safety (MOS) = [(BEP/Net Sales) - 1] expressed as a percentage to 2 decimals (This will be negative)

This assignment has 2 parts: Part 1 is below; Part 2 is the Assignment 6 spreadsheet (fill in the golden cells)

Define the following:

1.Contribution Margin

2.Fixed expense (please give an example of a common fixed expense)

3.Variable expense (please give an example of a common variable expense)

4.Mixed expense (please give an example of a common variable expense)

5.Break-even point in dollars

6.Margin of safety