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Q: I'm evaluating your Excel workbook to calculate break-even values and optimal price (workbook name: Pricing and Breakeven Analysis 21.xls) and I'm confused by your calculations of variable cost. In your documentation it states that the variable cost is 69% of the revenue; but this percentage seems to change when you increase or decrease the average price and this percentage is also different in the calculation of the optimal price. How are you calculating the variable cost under those different scenarios?
A: The 69% is simply the example applied in the software. The variable cost is an input ie you input the value of variable costs for your business (you can obtan this from your P&L or on a unit sales basis).These costs include materials, production, distribution, and transaction costs etc. The variable cost percentage is simply this number as a percentage of the revenue ie in the example 69% is 345,000 / 500,000 (variable cost / business revenue). As you change the price and/or units sold then the revenue will vary (revenue = price * units sold) and so may the variable cost percentage. If the number of units sold changes then the variable cost in monetary terms will also change ie if each unit has a variable cost of $10 and I sell 100 the variable cost is 1000 if I sell 80 it is 800.
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