What are the formulas for total costs, selling price per unit, total revenue, total profits , break even points and graph input are profits?
| | | | | | | |
| Scenario: | Total cost is sum of fixed and variable costs. | | | |
| | Break-even is when total costs equal total revenues. | | | |
| Decision points: | 1. Recreate everything as shown w/ a background picture. | | | |
| | 2. We decide to give a volume discount per the table below. What's the break-even point? Show chart. |
| 1 | 1-999 units | 50 | | | | |
| 1000 | 1000-1999 units | 47.5 | | | | |
| 2000 | 2000+ units | 46.25 | | | | |
| | 3. What is break-even when labor cost rises to $24? | | | |
| | | | | | | |
| INPUT: | | GRAPH INPUT AREA: | | | | |
| Number of Units Sold | $2,000 | Selling Units | Profits | | | |
| | | 500 | | | | |
| Fixed Equipment Cost | $10,000 | 750 | | | | |
| Variable Labor Cost per Unit | $24 | 1000 | | | | |
| Variable Material Cost per Unit | $17.50 | 1250 | | | | |
| Total Costs | | 1500 | | | | |
| Selling Price per Unit | | 1750 | | | | |
| Total Revenues | $ | 2000 | | | | |
| TOTAL PROFITS | $ | 2250 | | | | |
| Break-even point: | $ | 2500 | | | | |
Financial planning case 12-6
A Married Couple with Children Address Their Life Insurance Needs
Joseph and Marcia Michael of Athens, Georgia, are a married couple in their mid-30s. They have two children, ages 5 and 3, and Marcia is pregnant with their third child. Marcia is a part-time book indexer who earned $28,000 after taxes last year. Because she performs much of her work at home, it is unlikely that she will need to curtail her work after the baby is born. Joseph is a marriage counselor; he earned $72,000 last year after taxes. Because both are self-employed, Marcia and Joseph do not have access to group life insurance. They are each covered by $60,000 universal life policies they purchased three years ago. In addition, Joseph is covered by a $60,000, five-year guaranteed renewable term policy, which will expire next year. The Michaels are currently reassessing their life insurance program. As a preliminary step in their analysis, they have determined that Marcia's three survivors would qualify for Social Security survivor's benefits of about $1,900 per month, or an annual benefit of $22,800, if she were to die. For Joseph's survivors, the figure would be $2,600 per month, or an annual benefit of $31,200. Both agree that they would like to support each of their children to age 22, but to date, they have been unable to start a college savings fund. The couple estimates that it would cost $300,000 to put all three children through a regional university in their state as measured in today's dollars. They expect that burial expenses for each spouse would total about $12,000, and they would like to have a lump sum of $50,000 to help the surviving spouse make payments on their home mortgage. They also feel that each spouse would want to take a three-month leave from work if the other were to die. Assume that 25% of income is used for personal needs.
Calculate the amount of life insurance that Marcia needs based on the information given. Use the Run the Numbers worksheet or the Garman/Forgue companion website. Assume a 3 percent rate of return after taxes and inflation and an income need for 22 years because the unborn child will need financial support for that many years. Round Present value of a Series of Equal Amounts in intermediate calculations to four decimal places. (Use Appendix A.4.) Round your answer to the nearest dollar.
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Calculate the amount of life insurance that Joseph needs based on the information given. Use the Run the Numbers worksheet or the Garman/Forgue companion website. Assume a 3 percent rate of return after taxes and inflation and an income need for 22 years because the unborn child will need financial support for that many years. Round Present value of a Series of Equal Amounts in intermediate calculations to four decimal places. (Use Appendix A.4.) Round your answer to the nearest dollar.
$
RUN THE NUMBERS The Needs-Based Approach to Life Insurance This worksheet provides a mechanism for estimating life insurance needs using the needs-based approach The amounts needed for final expenses, income replacement, readjustment needs, debt repayment, college expenses, and other special needs are calculated and then reduced by funds available from government benefits and any current insurance or assets that could cover the need. This worksheet is also available on the Garman/Forgue companion website. Example Your Figures $12,000 +823,217 +19,000 Factors Affecting Need 1. Final-expense needs Includes funeral, burial, travel, and other items of expense just prior to and after death 2. Income-replacement needs Multiply 75 percent of annual income* by the interest factor from Appendix A-4 that corresponds to the number of years that the income is to be replaced and the assumed after-tax, after-inflation rate of return. ($42,000 X 19.6004 for 30 years at a 3% rate of return) 3. Readjustment-period needs To cover employment interruptions and possible education expenses for surviving spouse and dependents 4. Debt-repayment needs Provides repayment of short-term and installment debt, including credit cards and personal loans 5. College-expense needs To provide a fund to help meet college expenses of dependents 6. Other special needs 7. Subtotal (combined effects of items 1-6) 8. Government benefits Present value of Social Security survivor's benefits and other benefits. Multiply monthly benefit estimate by 12 and use Appendix A-4 for the number of years that benefits will be received and the same interest rate that was used in item 2. ($2,725 x 12 x 11.9379 for 15 years of benefits and a 3% rate of return) 9. Current insurance assets 10. Life insurance needed +10,000 + +75,000 +0 +$939,217 + + - 390,369 -100,000 $448,848 S *Seventy-five percent is used because about 25 percent of income is used for personal needs. Appendix A-4 Present Value of a Series of Equal Amounts (an Annuity of $1 Received at the End of Each Period) (Used to Compute the Discounted Present Value of a Stream of Income Payments) 51861 Selo 5906 5668 n 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 1 09901 904 09709 09615 09524 0904 096 095 09174 03091 030090929 088 087 08660.3621 0.8517 08.05 0.81030.8333 2 1.970419116 1915 1.8861 185M 1.8034 1.800 1.7833 1.7591 1.7355171251691 16681 1646 1657 1.6052 1.5852 15656 1.546515278 3 2.9110 2883928286 2.7751 27232 26730 26243 25771 2531324869 2443724018 2.3612 2.3216 2.2832 2.2459 2.20% 2.1143 2.1399 2.1065 3.9020 3.8077 3.7171 3.629935460 34651 3.387233121 32397 3.1699 3.100430373 2.9745 2.9137 2.8550 2.7982 2.732 2.6901 2.6386 25887 45534 1 5 45297 518 5 212 4.100239927 38897 3.7908 36959 3.6018 3.5172 3.4301 3.3522 3.270 .199) 3.1272 30576 2.9906 57955 56014 5.4172 5221 5075749173476654672949943553 42305 41114 3.8587 3.7845 61 292 7634 3355 6.728264720 6230 60021 576 564 2064 Sono 484 4.702 403 4026 483 416044096 224 17057 606 76517 73255 70197 6.7327 6.6632 62098 59713 5.7666 55348 5.3349 4.6389 4.4873 43436 42072 40776 39541 38372 9 12 7761 745 178 17 6519 60 59 57900 5017 49054 47716 4.60 4.450643030 4162 40310 10 94713 0826 85002 1109 77217 7360170216 67101 4177 61046 5.82 52161 50188 46586 4.4941 1189 4.1925 11 10.36% 9,7858 9.257687605 8.3064798697497 71390680526051 62065 52337 5.0286 A 665 41271 12 11.2551 105753 995409 5 M MIA 790 561 OT 307 5420651911 490447982 4605 4092 13 2.1337 11341 10.650 99856 9.3936 527 83577 79038 7486971034 6.149 61218 5844 5.5831 5.303 05 4922 14 001212100 11 261 99 9 9907055 07727 699 5.7245 5.4675 52291 SO 4610 15 33651 12898 1199 11.1184 103 97122 1079 5995 R0607 6061 7.1909 5.8074 5.5755 5124250916 359 16 16.7179 13.5777 2.5611 11.6523 10.8378 10.109 9.4166 8.85148.31% 78237 7.3792 5.9542 56685 5.4053 5.1624 49377 472% 1 592) 14.2919 1.1661 125 112741 100 92 1216 54 026 7.50 6.0072 5.7487 5414652223 499 18 16.83 14.0 3. 2013 11.00 1082 10.050193719 87356 $2014 27016 6.467461280581785519 527 SON 48122 1 17.2260 156785 1.323 103 120853 11.1581 10.3856 60 89501 7 8093 65504 619258775 5.585 5.3125000 20180156 3514 415 050) 124622 11. 090 98181 0785 851% 7963 7010 623162503 5.9388562785.527 5.2009 4 21 20 17011) 15.4150 m2 122 IMI 100 10016892922 6487 80751 2500 101 6.6870055.971 5.6648 537 51268 40 22 760 1760 15969 4511 1160 120016 11 0612 10 2007 9:41 7715 7.1095 610 63587 6011) 50 50 5106 2014 23 20.4558 2922 16:406 568 46 12304411.7722 3711 9580281282064 7.714 72297 6.701 6.986.01257234 5021 5.166849745 21414 1919 16919 15 2470 6295041409352887066941 7.73 6.8051 6.4338 6.0726 5.70655450951822 5 22003295235174131 15.021 099 12.7834116536 648 98226 90770 8.4217 7.881 7.3300 6.8729 6.4641 6.0971 57662 SA 51951 494 26 22.7952 20.1210 178768 15.9828 43752 13.0032 118058 10.810099209.1609 7.3717 69061 6.4806 6.1182 578015480452060 27 235596 20.7059 183270 163296166430132105 11967 109352 10.06 9.2372 8.5478 7.942676086 6.9352 65135 1364 57975 549195.2151 28 242164 21.251387641 166631 14.051 .406212.1371 110511 10.1161 9.3066 86016 7964474412 65335 61520 S S 5016 52228 46 29 25.0658 21. 1.185 169837 15.1411 3.507 12.2777 11.1584 10.19 9 6 74701 65509 61656 800455098 292 30 25.8077 22.3965 19.6004 17.2920 153725 13.48 12.4090 11.2578 10.27379.4269 86938 80552 7,4957 70027 61725829455168 5.27 4.979 2.8347 27.3555 23.1143 9.798 17.1591 15.0063 133317 11.9246 10.7574 9.7791 89511 82438 7634 7.1050 66418 6.2335 5.8713 552 5.2582 49906 50 39.1961314236 25.7298 21.4822 182559 15.7619 1.8007 122335109617 99148 90417 83045 76792 7.1327 6.6005 6246359880155541 5.26234.9995 10 65660 6172 RUN THE NUMBERS The Needs-Based Approach to Life Insurance This worksheet provides a mechanism for estimating life insurance needs using the needs-based approach The amounts needed for final expenses, income replacement, readjustment needs, debt repayment, college expenses, and other special needs are calculated and then reduced by funds available from government benefits and any current insurance or assets that could cover the need. This worksheet is also available on the Garman/Forgue companion website. Example Your Figures $12,000 +823,217 +19,000 Factors Affecting Need 1. Final-expense needs Includes funeral, burial, travel, and other items of expense just prior to and after death 2. Income-replacement needs Multiply 75 percent of annual income* by the interest factor from Appendix A-4 that corresponds to the number of years that the income is to be replaced and the assumed after-tax, after-inflation rate of return. ($42,000 X 19.6004 for 30 years at a 3% rate of return) 3. Readjustment-period needs To cover employment interruptions and possible education expenses for surviving spouse and dependents 4. Debt-repayment needs Provides repayment of short-term and installment debt, including credit cards and personal loans 5. College-expense needs To provide a fund to help meet college expenses of dependents 6. Other special needs 7. Subtotal (combined effects of items 1-6) 8. Government benefits Present value of Social Security survivor's benefits and other benefits. Multiply monthly benefit estimate by 12 and use Appendix A-4 for the number of years that benefits will be received and the same interest rate that was used in item 2. ($2,725 x 12 x 11.9379 for 15 years of benefits and a 3% rate of return) 9. Current insurance assets 10. Life insurance needed +10,000 + +75,000 +0 +$939,217 + + - 390,369 -100,000 $448,848 S *Seventy-five percent is used because about 25 percent of income is used for personal needs. Appendix A-4 Present Value of a Series of Equal Amounts (an Annuity of $1 Received at the End of Each Period) (Used to Compute the Discounted Present Value of a Stream of Income Payments) 51861 Selo 5906 5668 n 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 1 09901 904 09709 09615 09524 0904 096 095 09174 03091 030090929 088 087 08660.3621 0.8517 08.05 0.81030.8333 2 1.970419116 1915 1.8861 185M 1.8034 1.800 1.7833 1.7591 1.7355171251691 16681 1646 1657 1.6052 1.5852 15656 1.546515278 3 2.9110 2883928286 2.7751 27232 26730 26243 25771 2531324869 2443724018 2.3612 2.3216 2.2832 2.2459 2.20% 2.1143 2.1399 2.1065 3.9020 3.8077 3.7171 3.629935460 34651 3.387233121 32397 3.1699 3.100430373 2.9745 2.9137 2.8550 2.7982 2.732 2.6901 2.6386 25887 45534 1 5 45297 518 5 212 4.100239927 38897 3.7908 36959 3.6018 3.5172 3.4301 3.3522 3.270 .199) 3.1272 30576 2.9906 57955 56014 5.4172 5221 5075749173476654672949943553 42305 41114 3.8587 3.7845 61 292 7634 3355 6.728264720 6230 60021 576 564 2064 Sono 484 4.702 403 4026 483 416044096 224 17057 606 76517 73255 70197 6.7327 6.6632 62098 59713 5.7666 55348 5.3349 4.6389 4.4873 43436 42072 40776 39541 38372 9 12 7761 745 178 17 6519 60 59 57900 5017 49054 47716 4.60 4.450643030 4162 40310 10 94713 0826 85002 1109 77217 7360170216 67101 4177 61046 5.82 52161 50188 46586 4.4941 1189 4.1925 11 10.36% 9,7858 9.257687605 8.3064798697497 71390680526051 62065 52337 5.0286 A 665 41271 12 11.2551 105753 995409 5 M MIA 790 561 OT 307 5420651911 490447982 4605 4092 13 2.1337 11341 10.650 99856 9.3936 527 83577 79038 7486971034 6.149 61218 5844 5.5831 5.303 05 4922 14 001212100 11 261 99 9 9907055 07727 699 5.7245 5.4675 52291 SO 4610 15 33651 12898 1199 11.1184 103 97122 1079 5995 R0607 6061 7.1909 5.8074 5.5755 5124250916 359 16 16.7179 13.5777 2.5611 11.6523 10.8378 10.109 9.4166 8.85148.31% 78237 7.3792 5.9542 56685 5.4053 5.1624 49377 472% 1 592) 14.2919 1.1661 125 112741 100 92 1216 54 026 7.50 6.0072 5.7487 5414652223 499 18 16.83 14.0 3. 2013 11.00 1082 10.050193719 87356 $2014 27016 6.467461280581785519 527 SON 48122 1 17.2260 156785 1.323 103 120853 11.1581 10.3856 60 89501 7 8093 65504 619258775 5.585 5.3125000 20180156 3514 415 050) 124622 11. 090 98181 0785 851% 7963 7010 623162503 5.9388562785.527 5.2009 4 21 20 17011) 15.4150 m2 122 IMI 100 10016892922 6487 80751 2500 101 6.6870055.971 5.6648 537 51268 40 22 760 1760 15969 4511 1160 120016 11 0612 10 2007 9:41 7715 7.1095 610 63587 6011) 50 50 5106 2014 23 20.4558 2922 16:406 568 46 12304411.7722 3711 9580281282064 7.714 72297 6.701 6.986.01257234 5021 5.166849745 21414 1919 16919 15 2470 6295041409352887066941 7.73 6.8051 6.4338 6.0726 5.70655450951822 5 22003295235174131 15.021 099 12.7834116536 648 98226 90770 8.4217 7.881 7.3300 6.8729 6.4641 6.0971 57662 SA 51951 494 26 22.7952 20.1210 178768 15.9828 43752 13.0032 118058 10.810099209.1609 7.3717 69061 6.4806 6.1182 578015480452060 27 235596 20.7059 183270 163296166430132105 11967 109352 10.06 9.2372 8.5478 7.942676086 6.9352 65135 1364 57975 549195.2151 28 242164 21.251387641 166631 14.051 .406212.1371 110511 10.1161 9.3066 86016 7964474412 65335 61520 S S 5016 52228 46 29 25.0658 21. 1.185 169837 15.1411 3.507 12.2777 11.1584 10.19 9 6 74701 65509 61656 800455098 292 30 25.8077 22.3965 19.6004 17.2920 153725 13.48 12.4090 11.2578 10.27379.4269 86938 80552 7,4957 70027 61725829455168 5.27 4.979 2.8347 27.3555 23.1143 9.798 17.1591 15.0063 133317 11.9246 10.7574 9.7791 89511 82438 7634 7.1050 66418 6.2335 5.8713 552 5.2582 49906 50 39.1961314236 25.7298 21.4822 182559 15.7619 1.8007 122335109617 99148 90417 83045 76792 7.1327 6.6005 6246359880155541 5.26234.9995 10 65660 6172
