Due In 24 Hours: The Next Step In Planning For Your Ne

Due In 24 Hoursoverviewthe Next Step In Planning For Your New Busin

Use information from Milestone One and the provided Milestone Two Market Research Data Appendix Word Document to conduct a cost-volume profit analysis. Complete the “Contribution Margin Analysis” and “Break-Even Analysis” tabs in the Project Workbook Spreadsheet that you used for completing the Milestone One assignment.

Specifically, you must address the following rubric criteria:

Contribution Margin

Determine your contribution margin per unit in the “Contribution Margin Analysis” tab. Choose a sales price for each product. Calculate the contribution margin for each product based on your sales price and the variable cost for that product. Show your work using calculations to the side of the table or using appropriate formulas in the table.

Break-Even Analysis

Use cost-volume-profit (CVP) analysis to determine your break-even points for achieving your target profits in the “Break-Even Analysis” tab. Determine the break-even points for each product. Show your work using calculations to the side of the table or using appropriate formulas in the table. Determine break-even units for the suggested target profits for each product. Show your work using calculations to the side of the table or using appropriate formulas in the table.

Paper For Above instruction

The next critical step in planning for a successful new business involves detailed financial analysis, specifically focusing on contribution margin and break-even points through cost-volume-profit (CVP) analysis. This process aids entrepreneurs in understanding how sales volume impacts profits and at what point the business becomes financially sustainable. Using data from earlier milestones, such as market research and cost estimates, a comprehensive CVP analysis enables precise planning and strategic decision-making.

Contribution margin analysis is fundamental to this process. It involves determining how much revenue from each unit sold contributes to covering fixed costs and generating profit. To calculate the contribution margin per unit, the sales price of each product is reduced by its variable cost. This margin indicates the amount remaining after variable costs are deducted, which can then be used to cover fixed costs. For example, if a product is sold at $50 and has a variable cost of $30, the contribution margin per unit would be $20. This calculation should be performed for each product to understand their individual profitability and to inform pricing strategies.

Choosing appropriate sales prices is crucial. Prices must be competitive yet sufficient to cover variable costs and contribute to fixed expenses. The selection should be based on market research, competitor analysis, and customer willingness to pay. Once prices are established, the contribution margin per unit can be calculated systematically, often using formulas within spreadsheets to streamline the process. Showing work alongside each calculation enhances transparency and accuracy, ensuring that all assumptions are justified.

Break-even analysis extends this understanding by identifying the sales volume needed to cover all fixed and variable costs, resulting in zero profit. CVP analysis helps determine the break-even point in units and sales dollars. For each product, the break-even units are calculated by dividing total fixed costs by the contribution margin per unit. For instance, if fixed costs are $10,000 and the contribution margin per unit is $20, then the break-even units would be 500 units. This analysis can be adapted to target profits by adding desired profit levels to fixed costs before division, thus determining the necessary sales volume to reach profit goals.

Accurate calculations and clear documentation of work are essential. Showing formulas and intermediate steps in the spreadsheet ensures transparency and facilitates adjustments. It also provides insights into how changes in sales price, variable costs, or fixed costs impact profitability. These analyses aid strategic decisions such as pricing, cost control, and sales targets, making them indispensable for new business planning.

The overall goal of this financial analysis is to create a clear roadmap for achieving profitability. By understanding contribution margins, setting realistic sales targets, and identifying break-even points, entrepreneurs can develop more effective budgets and sales strategies. These insights also assist in securing funding or investment, as they demonstrate the financial viability and growth potential of the business idea.

References

  • Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2021). Managerial Accounting (16th ed.). McGraw-Hill Education.
  • Horngren, C. T., Sundem, G. L., Stratton, W. O., Burgstahler, D., & Schatzberg, J. (2014). Introduction to Management Accounting. Pearson.
  • Drury, C. (2018). Management and Cost Accounting (10th ed.). Cengage Learning.
  • Hilton, R. W., & Platt, D. (2016). Managerial Accounting: Creating Value in a Dynamic Business Environment. McGraw-Hill Education.
  • Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2019). Managerial Accounting: Tools for Business Decision-Making (8th ed.). Wiley.
  • Kaplan, R. S., & Cooper, R. (1998). Cost & Effect: Using Integrated Cost Systems to Drive Profitability and Performance. Harvard Business School Press.
  • Anthony, R. N., & Govindarajan, V. (2009). Management Control Systems. McGraw-Hill Education.
  • Drury, C., & Tayles, M. (2020). Management and Cost Accounting. Cengage Learning.
  • Arnaboldi, M., & Lapsley, I. (2003). Management control and accountability: The impact of the changing social and economic environment. Financial Accountability & Management, 19(4), 377-394.
  • Blocher, E., Stout, D., Juras, P. E., & Cokins, G. (2019). Cost Management: A Strategic Emphasis. McGraw-Hill Education.

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