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Vocational Accounting

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Introduction

Vocational Accounting A. Calculate break even point on the basis of average guest per week. - Break even = Fixed costs Contribution - Fixed costs = �35,000 + �8,650 = �43,650 - Contribution = Selling price - Variable costs - Selling price = �150 per person -Variable costs = �35 + �3 +�5 + �10 = �53 -Contribution = �150 - �53 = �97 -Break even = �43,650 �97 = 450 guests - This shows that 450 guests are to be held within a 30 week period. Therefore for the charity to break even 15 guest are required each week. In order to heck that the answer I came to is correct I will take the 450 guests (answer I came to) and, should the answer be correct, income - (fixed costs + variable costs) would be equal to 0. Income = 450 x �150 = �67,500 Fixed costs = �43, 650 Expenditure = 450 x Variable costs = 450 x �53 = �23, 850 Fixed costs + Variable costs = �23,850 + �43,650 = �67,500 Therefore income - (fixed costs + variable costs) = �67,500 - �67,500 = 0 B. Assume that the holiday home is full (20 guests) for the whole period (30 weeks). Calculate the margin of safety and the sales price that could be charged per guest to break-even. ...read more.

Middle

Should the charity stand to make a loss as a result of increasing the number of guests by 10 then for obvious reasons there would be no point in making the change in question. -The signal increase in cost would be seen in the yearly fixed rent of �14,550 so the charity will need to take this into account. - Selling price = �150 10 guests x 30 weeks = 300 guests 300 guests x �150 = �45,000 - This is the amount the charity would stand to receive should they get the maximum number of guests in the home. -Fixed costs = �14,550 Variable costs = 53 x 10 x 30 = �15,900 Profit = 45,000 - 14,550 - 15,900 = �14,550 As you will have seen from the above table, should the charity decide to increase the number of guests by 10 then they would stand to receive twice the amount in profit (�14,550 to �29,100). With the extra costs, due to the increase in number of guests, the break even point (currently at 15 guests per week) will also increase. Break even point = Fixed Costs = 14,550 Contribution per Unit 97 = 150 Guests 150 guests 30 weeks = an increase of 5 guests (per week) ...read more.

Conclusion

However the likely hood of this occurring is very low due to such variables as price levels effecting sales revenue and costs. Breakeven analysis could therefore end up being damagingly misleading to the charity should management fail to take into account significant changes. Further limitations to the breakeven analysis can be seen by the fact that it is only effective in the short term due to the effect of volume on such variables as cost, profit and revenue. Therefore breakeven can not be used long term because there are many variables other than volume that need to be taken into consideration as they will affect the fixed costs. After taking all the above into account, the most effective variable is the level of demand as this will act as a stepping stone to all other aspects of the charity. If the charity was just about breaking even at its original capacity of 20 guests then the introduction of a further 10 guests would be a mistake as the demand for these further vacancies would be low and fixed costs would not be covered. However, this works both ways, should the demand be very high as well as the number of guests significantly above the breakeven point at the charities original capacity of 20 guests then it would be seen as a sound business investment to increase this to 30 guests. ...read more.

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