The Portable MBA in Finance and Accounting, 3rd Edition

114 Understanding the Numbers

percentage of 30.1%. Our fixed costs are still $100,000 per year, so we now ad-
just the general rule for CVP point as follows:^5

Solving for x,

To test this model, assume that we have $332,226 in sales revenue and we did
sell the planned mix. Our contribution margin will be 30.1%, which yields the
$100,000 necessary to cover the fixed costs. We do, in fact, break even. The
key, of course, is to be able to forecast the correct mix and then to attain it.”
Abbey was quick to correct Stephen. “Don’t forget, I still want to be at
least as well off as if I chose to stay with my publisher—say the 20,000 books at
my $12 royalty.”
“Easy enough. We just revise the equation by adding a necessary profit re-
quirement—this is why they call it cost-volume-profit analysis:

Sales−−=Variable Costs Fixed Costs Profit

xx−− =(.%)$, $,69 9 100 000 240 000

(.%) $ ,

$,

.%

$,

30 1 100 000

100 000

30 1

332 226

x

x

=

=

= in sales revenue

Sales−−=Variable Costs Fixed Costs

−− =

0

xx(.%) $ ,69 9 100 000 0

EXHIBIT 3.9 Mix contribution estimates.

Books Packages Hats Mix

Per Unit Total Per Unit Total Per Unit Total Total

Low Mix 100 30 10
Revenue $80 $8,000 $140 $4,200 $50 $ 500 $12,700
Variable Cost $57 $5,700 $100 $3,000 $24 $ 240 $ 8,940
Contribution 71.3% 71.4% 48.0% 70.4%

Expected Mix 100 50 20
Revenue $80 $8,000 $140 $7,000 $50 $1,000 $16,000
Variable Cost $57 $5,700 $100 $5,000 $24 $ 480 $11,180
Contribution 71.3% 71.4% 48.0% 69.9%

High Mix 100 70 30
Revenue $80 $8,000 $140 $9,800 $50 $1,500 $19,300
Variable Cost $57 $5,700 $100 $7,000 $24 $ 720 $13,420
Contribution 71.3% 71.4% 48.0% 69.5%