Cost-volume analysis is commonly done in two components: breakeven point and make vs buy. Both are useful analytical methods to check the economic and capacity feasibility of an aggregate (product family) plan. They look at the variable costs of OPSCM and the overhead cost of the resource capacity needed to determine the total cost of providing products or services. The prices charged for this output will then indicate if there is a feasible profit zone where all costs are covered. This allows for the inspection of marketing strategies to impact prices and OPSCM performance to impact costs. The result will show the volume range where the profit zone exists at the aggregate level and the combination of prices, costs, and capacities that are required to reach it.

The problem assigned is a very practical analysis of the planning for profitability of an operation that deals with the level of inputs and productivity. There are an explanation of the method, formulas, and an example in the OM chapter 5 on pgs 208-211; and a solved problem on p.214-15. There is also an example and the Formulas for this analysis in the 'Content' Resource folder in the Course Administration section, so print and study them before attempting the problem. Since this is a quantitative assignment the use of an Excel spreadsheet is highly recommended; otherwise, show all calculations by hand or in a Word document.

Graded Assignment: Using the data in OM text Problem 5 on p.218, do the cost-volume analysis to answer the questions 'a-e' given here: (not the ones in the book). For each question do these 4 tasks:

1) identify the formula used for the calculation either from the textbook pgs 208-09 or from the list provided in the 'Content' Resources folder= Wk-04 Cost-Volume Formulas.8a.doc

2) set-up the calculation by inserting data into the formula chosen

3) solve the calculations for the answer

4) answer the management analysis question for each calculation.

Problem questions:

a. What is the monthly breakeven in units if the price is $1.00 each? In revenue? Will the forecast sales be profitable?

b. What price must be charged to earn a monthly profit of $5,000 if the forecast is correct? Is this likely to be happen?

c. What volume is needed at a price of $1.00 to earn a monthly profit of $5,000? Is this likely to happen?

d. What volume is needed at a price of $1.00 to obtain a monthly profit of $.10 per unit? Is this likely to happen?

e. What volume is needed at a price of $1.00 to obtain a monthly revenue of $20,000? Is this likely to happen?