Survey of Accounting Packet 3 p.3 Survey of Accounting Packet 3 P. 4 Part 3 That number of jobs seems doable to W.T. But the whole reason he's going into business is to make a profit. Otherwise, he'll end up using all of his savings and he definitely doesn't have enough to last the entire school year. W.T.'s parents help him cover a number of his expenses, but he needs to generate at least $400 per month to avoid having to use any savings. Part 4 That number of jobs will likely take a few more hours a week to work than he'd originally hoped, but should be doable. However, he realizes it may take a little while to build up that number of customers. He talked to his parents and they agreed that they'll provide a little more support for the first semester he's in business. But, they are concerned about whether or not he can comfortably generate enough business to cover costs. How many jobs would W.T. need to complete to earn $400? What would that be in dollars? (1) Sales volume to eam desired profit (in units): Fixed costs + Desired profit $ Contribution margin per job $ $ jobs W.T.'s talked to several businesses around town who have agreed to allow to promote his service in their stores for a limited time. Based on their feedback about the needs of their customers, he believes he can easily generate 40 jobs per month when he opens for business. To provide some additional support for W.T.'s conversation with his parents, compute the following related to margin of safety. Remember: W.1. can't complete just part of a job. (1) Margin of safety: (2) Sales volume to ear desired profit (in dollars): In Units In Dollars Required units X Sales price per unit = Sales in dollars required to earn desired profit Budgeted sales $ Break-even sales $ X $ $ Margin safety $ Check your work: (2) Margin of safety (%): Total sales $ $ Budgeted sales - Break-even sales Budgeted Sales % Less: Total variable costs $ = Total contribution margin $ Less: Total fixed costs $ = Total profit $ Question: Why isn't the profit exactly $400? Survey of Accounting Packet 3 p.3 Survey of Accounting Packet 3 P. 4 Part 3 That number of jobs seems doable to W.T. But the whole reason he's going into business is to make a profit. Otherwise, he'll end up using all of his savings and he definitely doesn't have enough to last the entire school year. W.T.'s parents help him cover a number of his expenses, but he needs to generate at least $400 per month to avoid having to use any savings. Part 4 That number of jobs will likely take a few more hours a week to work than he'd originally hoped, but should be doable. However, he realizes it may take a little while to build up that number of customers. He talked to his parents and they agreed that they'll provide a little more support for the first semester he's in business. But, they are concerned about whether or not he can comfortably generate enough business to cover costs. How many jobs would W.T. need to complete to earn $400? What would that be in dollars? (1) Sales volume to eam desired profit (in units): Fixed costs + Desired profit $ Contribution margin per job $ $ jobs W.T.'s talked to several businesses around town who have agreed to allow to promote his service in their stores for a limited time. Based on their feedback about the needs of their customers, he believes he can easily generate 40 jobs per month when he opens for business. To provide some additional support for W.T.'s conversation with his parents, compute the following related to margin of safety. Remember: W.1. can't complete just part of a job. (1) Margin of safety: (2) Sales volume to ear desired profit (in dollars): In Units In Dollars Required units X Sales price per unit = Sales in dollars required to earn desired profit Budgeted sales $ Break-even sales $ X $ $ Margin safety $ Check your work: (2) Margin of safety (%): Total sales $ $ Budgeted sales - Break-even sales Budgeted Sales % Less: Total variable costs $ = Total contribution margin $ Less: Total fixed costs $ = Total profit $ Question: Why isn't the profit exactly $400