Considering the break-even point and the number of available stylists, will the salon ever break even? If it does, what will need to happen? What can be done to achieve the break-even point? Companies typically do not want to simply break even, as they are in business to make a profit. Break-even analysis Break Even (2) - Break Even (CD can help companies determine the level of sales in dollars or in units that is needed to make a desired profit.
The process for factoring a desired level of profit into a break-even analysis is to add the desired level of profit to the fixed costs and then calculate a new break-even point.
We know that Hicks Manufacturing breaks even at Blue Jay birdbaths, but what if they have a target profit for the month of July? They can simply add that target to their fixed costs. By calculating a target profit, they will produce and hopefully sell enough bird baths to cover both fixed costs and Break Even (2) - Break Even (CD target profit.
Alternatively, we can calculate this in terms of dollars by using the contribution margin ratio. As done previously, we can confirm this calculation using the contribution margin income statement:. Note that the example calculations ignored income taxes, which implies we Break Even (2) - Break Even (CD finding target operating income. However, companies may want to determine what level of sales would generate a desired after-tax profit. To find the break-even point at a desired after-tax profit, we simply need to convert the desired after-tax profit to the desired pre-tax profit, also referred to as operating income, and then follow through as in the example.
First, the after-tax profit needs to be converted to a pre-tax desired profit:. The tax rate indicates the amount of tax expense that will result from any profits and 1 — tax rate indicates the amount remaining after taking out tax expense. The concept is similar to buying an item on sale. Another way to find this involves two steps. Taxes and profit work in a similar fashion. However, in most break-even situations, as well as other decision-making areas, the desired after-tax profit is known, and the pre-tax profit must be determined by dividing the after-tax profit by 1 — tax rate.
Alternatively, target sales in sales dollars could have been calculated using the contribution margin ratio:. Once again, the contribution margin income statement proves the sales and profit relationships. Thus, to calculate break-even point at a particular after-tax income, the only additional step is to convert after-tax income to pre-tax income prior to utilizing the break-even formula. It is good to understand the impact of taxes on break-even analysis as companies will often want to plan based on the after-tax effects of a decision as the after-tax portion of income is the only part of income that will be available for future use.
Because break-even analysis is applicable to any business enterprise, we can apply these same principles to a service organization. They have analyzed the cost to the firm associated with preparing these returns. Haven't been excited for an album like this since, Ride "Nowhere", or the first Oceansize album! Markus is Willy Wonka and I'm just visiting. I want to see everything in that factory.
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