Financial Analysis and Breakeven Point Calculations Assignment

This assignment solution focuses on breakeven analysis, a critical concept in financial management. The solution presents three key components: calculating the breakeven point in units, determining the number of children needed to achieve a desired profit, and calculating the sales revenue required to achieve a target profit. The solution meticulously outlines the calculations for fixed costs, variable costs, contribution margin, and revenue. The first part determines the breakeven point by dividing fixed expenses by the contribution per child. The second part calculates the number of children required to meet a specific profit target. The final part calculates the sales revenue needed to achieve the desired profit, along with the required increase in fees per child. Formulas and descriptions are provided to clarify each step, making it a comprehensive guide to breakeven analysis.

Answer 1
BREAKEVEN POINT
(UNITS)= (FIXED EXPENSES/CONTRBUTION PER CHILD)
(AMOUNT IN $)
REVENUE (A) 640
LESS: VARIABLE COSTS (B):
DESCRIPTION RATE PER CHILD($)
Lunch and snacks 130
Educational supplies 75
Other supplies 35 240
CONTRIBUTION PER CHILD (A) - (B) 400
FIXED EXPENSES (AS GIVEN IN QUESTION) 4800
BREAKEVEN POINT = (4800/400)
BREAKEVEN NUMBER OF CHILDREN 12 CHILDREN
DESCRIPTION:
1. The total variable cost is calculated by summing the various variable costs. Formula
used “=SUM (B7:B9)”
2. The contribution per child is calculated by deducting the total variable costs from the
revenues. Formula used “C4-C9”
3. The total fixed cost (as given in question) is then divided by the contribution per
child, to find the break even number of children. Formula used “C13/C11”

Answer 2
NUMBER OF CHILDREN REQUIRED (FIXED EXPENSES + DESIRED PROFIT/CONTRBUTION PER CHILD)
NUMBER OF CHILDREN REQUIRED (4800 + 10800/400)
THEREFORE NO OF CHILDREN REQUIRED EACH MONTH (4800+10800/400) 39.00 CHILDREN
DESCRIPTION:
1. The fixed cost and desired profit are added and divided by the contribution per child
to compute the number of children required by the entity to earn the desired profit.
Formula used “= (4800+10800)/400”

Answer 3
SALES REVENUE TO ACHIEVE THE TARGET PROFIT =
TOTAL¿ COSTS+ TARGET PROFITS ¿
CONTRIBUTION MARGIN RATIO
FIXED COST (NEW)
DESCRIPTION AMOUNT ($)
Rent 3500
Utilities 400
Insurance 250
Salaries 1400
Misc 650
Filed Trips 2500
TOTAL FIXED COST 8700
CONTRIBUTION MARGIN RATIO =
CONTRIBUTION/
REVENUE
CONTRIBUTION MARGIN RATIO = (400/640)
CONTRIBUTION MARGIN RATIO = 0.625
SALES REVENUE TO ACHIEVE THE TARGET PROFIT = (8700+10800)/0.625
SALES REVENUE TO ACHIEVE THE TARGET PROFIT = 31200
FEES PER CHILD PER MONTH ($) = (31200/12) 2600
INCREMENT IN FEES PER MONTH ($)
= 2600-640 1960
PER
CHILD
DESCRIPTION:
1. The new fixed cost has been computed by summing the various components of the
fixed cost. Formula used “SUM (B5:B10)” The fixed cost computation comes out to
be $ 8700.
2. The contribution margin ratio is calculated by dividing the contribution per child by
the revenue per child. Formula used “= 400/640” The ratio comes out to be 0.625.
3. The sales revenue per child to achieve the target profit has been computed by dividing
the sum of the new fixed costs of $ 8700 and target profits of $ 10800 by contribution

margin ratio of 0.625. Formula used “= (8700+10800)/0.625”. The new fees per child
is $ 2600.
4. The increment required is calculated by deducting the old fee of $ 640 from the new
fee of $ 2600, that comes out to be $ 1960 per child.