Cost-volume analysis is commonly done in two components: breakeven point and make vs buy. Bothare useful analytical methods to check the economic and capacity feasibility of an aggregate plan. They look at the internal economics of the operations process and the overhead cost of the input of capacity resources to determine if there is a feasible profit zone for the independent demand expectations. The quest is to find the breakeven volume where all costs are covered and a profit zone begins. This allows the inspection of proactive demand strategies to impact prices and OPSCM performance to impact costs. The result will show if profit zones exist at the aggregate level and the combination of prices, costing, and capacity that are required to reach them.

The problem assigned is a very practical analysis of the planning for profitability of an operation that deals with the level of inputs and productivity. There are an explanation of the method, formulas, and an example in the OM chapter 5 on pgs 208 -211; and a solved problem on p.214.

There is also an example done in an Excel spreadsheet that is the preferred format for this problem. It can be found in the 'Content' Resource folder and is linked here:Wk-04 Cost-Volume Analysis Example1z-1.xls

The formulas needed in this analysis are s also given in the 'Content' Resource folder in the Course Administration section, so print and study them before attempting the problem.Wk-04 Cost-Volume Formulas.8y.doc

Since this is a quantitative assignment so use of an Excel spreadsheet is highly recommended; otherwise, show all calculations by hand or in a Word document.

Graded Assignment: Using the data in OM text problem 5 on p.218do the cost-volume analysis to answer the questions 'a-e' given here: (not the ones in the book).

For each question: 1) identify the formula used for the calculation either from the textbook pgs 206-07 or from the list provided in the 'Content' Resources folder, 2) show all calculations, 3) give the solutions from the calculations, and 4) answer the management analysis question.

a. What is the monthly breakeven in units if the price is $1.00 each? In revenue? Will the forecast sales be profitable?

b. What price must be charged to earn a monthly profit of $5,000 if the forecast is correct? Is this likely to be happen?

c. What volume is needed at a price of $1.00 to earn a monthly profit of $5,000? Is this likely to happen?

d. What volume is needed at a price of $1.00 to obtain a monthly profit of $.10 per unit? Is this likely to happen?

e. What volume is needed at a price of $1.00 to obtain a monthly revenue of $20,000? Is this likely to happen?

Post your answer file in this assignment. Post a note in the 'Wk#4 Help' item if you need assistance by identifying where you are having difficulty. DO NOT post your work there as that is an open forum and this is an individual assignment.