1.

Analysis of BEP

1. Contribution Margin Calculation:

 Contribution Margin: The contribution margin represents the amount from sales
revenue after covering variable costs, contributing towards fixed costs and profit.

Contribution Margin=Sales−Variable Expenses\text{Contribution Margin} = \text{Sales}

- \text{Variable Expenses}Contribution Margin=Sales−Variable Expenses

For $189,777.58 in sales:

Variable Expenses=$95,870.09\text{Variable Expenses} = \

$95,870.09Variable Expenses=$95,870.09 Contribution Margin=$189,777.58−
$95,870.09=$93,907.48\text{Contribution Margin} = \$189,777.58 - \$95,870.09 = \
$93,907.48Contribution Margin=$189,777.58−$95,870.09=$93,907.48

For the higher sales target of $287,210.08:

Variable Expenses=$145,090.15\text{Variable Expenses} = \

$145,090.15Variable Expenses=$145,090.15 Contribution Margin=$287,210.08−
$145,090.15=$142,119.93\text{Contribution Margin} = \$287,210.08 - \$145,090.15 = \
$142,119.93Contribution Margin=$287,210.08−$145,090.15=$142,119.93

2. Contribution Margin Ratio:

 Contribution Margin Ratio: This ratio indicates the percentage of each sales dollar
available to cover fixed costs and generate profit.

Contribution Margin Ratio=Contribution MarginSales\text{Contribution Margin Ratio} =

\frac{\text{Contribution Margin}}{\
text{Sales}}Contribution Margin Ratio=SalesContribution Margin

For $189,777.58 in sales:

Contribution Margin Ratio=$93,907.48$189,777.58=49.48%\text{Contribution Margin

Ratio} = \frac{\$93,907.48}{\$189,777.58} =
49.48\%Contribution Margin Ratio=$189,777.58$93,907.48=49.48%

3. Fixed Expenses:

 Fixed Expenses: Total fixed costs that do not change with the level of production or
sales.
 Fixed Expenses=$142,119.93\text{Fixed Expenses} = \
$142,119.93Fixed Expenses=$142,119.93

4. Breakeven Point Calculation:

 Breakeven Point: The sales level at which total revenue equals total costs (fixed and
variable), resulting in zero profit.

Breakeven Point (Sales)=Fixed ExpensesContribution Margin Ratio\text{Breakeven

Point (Sales)} = \frac{\text{Fixed Expenses}}{\text{Contribution Margin
Ratio}}Breakeven Point (Sales)=Contribution Margin RatioFixed Expenses

Using the fixed expenses and contribution margin ratio calculated:

Breakeven Point=$142,119.930.4948=$287,210.08\text{Breakeven Point} = \frac{\

$142,119.93}{0.4948} = \$287,210.08Breakeven Point=0.4948$142,119.93
=$287,210.08

Summary and Insights:

1. Current Performance:
o The current sales level of $189,777.58 is below the breakeven point of
$287,210.08, resulting in a negative EBIT of -$25,075.61.
o Variable expenses are 50.52% of sales, indicating a substantial portion of costs
varies with sales volume.
2. Contribution Margin Analysis:
o The contribution margin ratio of 49.48% suggests that nearly half of each sales
dollar contributes to covering fixed costs and profit.
o Improving the contribution margin (by reducing variable costs or increasing
prices) can lower the breakeven point.
3. Breakeven Point:
o The breakeven sales level of $287,210.08 is significantly higher than the current
sales, indicating the need to increase sales by approximately $97,432.50 to
achieve breakeven.
o Strategies to achieve this could include increasing sales volume, enhancing
pricing strategies, and controlling variable costs.

Recommendations:

1. Increase Sales:
o Develop marketing strategies and sales promotions to boost sales volume.
o Explore new markets or customer segments.
2. Cost Management:
o Evaluate and control variable costs to improve the contribution margin.
o Consider negotiating better terms with suppliers or finding cost-effective
alternatives.
 3. Operational Efficiency:
o Review operational processes to enhance efficiency and reduce waste.
o Focus on activities that provide the highest return on investment.

By addressing these areas, the company can move closer to reaching the breakeven point and
improving overall financial performance.