Profit Planning and Decision Making 214 CHAPTER 5 4 X 6 and some would be 5 X 7 or 8 X 10. Quick Photo's projected statemens 5,000,000 income for the first vear of operations is as follows; $1,600,000 Number of prints developed Revenue $(250,000) (265,000) Cost of sales Direct materials Direct labour (78,000) Depreciation Supervision Total cost of sales Gross profit (80,000) (673,000 927,000 Operating expenses Distribution costs (230,000) Salaries (110,000) Sales commission (25,000) Advertising (365,000) Subtotal Administration expenses (185,000) Salaries o(20,000) (60,000) Insurance Rent Depreciation (33,000) Subtotal (298,000) Finance costs (35,000) Total (698,000) Profit before taxes 229,000) (101,000) Income tax expense Profit for the year 128,000) Questions 1. Calculate Tony's break-even point in revenue and the cash break-even point in revenue, 2. How marny prints a year and what level of revenue must Tony reach if he wants to earn $275,000 in profit before taxes? 3. Calculate Tony's annual revenue break-even point by using the PV ratio if he is to meet the $275,000 profit before tax 4. If he increases his advertising budget by $20.000, what would be goal. Tony's new yearly break-even point in prints and in revenue? How many additional prints must Tomy develop cover the incremental advertising budget? to increase his revenuc to NEL 2. On the basis of the above information, if revenues were to decrease by 20% for both businesses next year, how much profit before taxes would each generate? 3. Because of the varying cost structures, discuss the implications that the PV ratio has on both companies' profit performance. Cases CASE 1: QUICK PHOTO LTD. Tony Kasabian to present to a local banker for financing for his new venture, Quick Photo Ltd. The investment proposal contained a marketing plan designed share of the southern Ontario digital print market. Tony several new high-technology digital film printers manufactured in Japan and capable of providing online photo finishing and processing of top-quality prints from digital print processors in kiosks in several Ontario high-traffic malls, including locations in Don Mills, Ottawa, Windsor, London, and Kingston. He felt that his business concept was in line with the trend of developing high-quality photo finishing ready to put the finishing touches on a business plan he wanted was to capture a good interested in buying was camera cards and CDs. His retailing plan consisted of operating digital services. However, he realized that his banker would be asking him many questions about market size, his competitors, his revenue targets for the next several years, and, most important, his marketing assumptions backing up his sales forecast. Therefore, before finalizing his business plan, Tony asked his friend, a recent commerce him calculate the number of prints that he would have to process each year to cover his fixed costs and earn a reasonable profit. On average, Tony figured sistent with competitors' charges for work of similar quality; graduate, to help out that he would charge $0.32 per print, a price prints would be con- most c Cases 215 5. IfTony reduces his direct material costs for processing the prints by $25,000, what would be his new break-even point in units and in t of revenue