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In the process of pursuing capital through private investors and financial institutions, RBC was approached with several questions. The following represents a sample of the
In the process of pursuing capital through private investors and financial institutions, RBC was approached with several questions. The following represents a sample of the more common questions asked: - What is the break-even point? - What sales dollars will be required to make $200,000 ? To make $500,000 ? - Is the product mix reasonable? (Beer tends to have a higher contribution margin ratio than food, and therefore product mix assumptions are critical to profit projections.) - What happens to operating profit if the product mix shifts? - How will changes in price affect operating profit? - How much does a pint of beer cost to produce? It became clear to the owners of RBC that the initial financial model was not adequate for answering these types of questions. After further research, RBC created another financial model that provided the following information for the first year of operations. Required: Perform a sensitivity analysis by answering the following questions: a. What is the break-even point in sales dollars for RBC? b. What is the margin of safety for RBC? c. What sales dollars would be required to achieve an operating profit of $200,000 ? $500,000
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