Analyze the Relationship Between Npv and Irr (the Key Factor Here Is the Discount Rate Used)

1223 Words Nov 8th, 2010 5 Pages
RUNNING HEAD: Contribution Margin and Breakeven Analysis Simulation

Contribution Margin and Breakeven Analysis Simulation
Juan Vázquez-Nieves, RN, BSN James Ciaramella
University of Phoenix

Contribution margin and breakeven analysis proved to be challenging, once again I’m face to interpret what I believe to be true. First going over the assign simulation was demanding to the point of taking the simulation three times or more, latter the article also proved to be a challenging in the attempts to express and explain my thoughts.

Considering Large Bulk Order
In order for Aunt Connie’s Cookies to decide how to proceed with the order she will need to understand the concept of contribution margin. A contribution margin reveals
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Even at zero production ACC will be making losses to the extent of their fixed costs.

Key Learning Point
Fixed cost is a cost that is not immediately affected by changes in the cost-driver level. For instance the total fixed cost for making cookies does not change from 670 regardless of the extra Bulk order of Real Mint produced or not. The reason for choosing fixed cost is that no matter how much or how little a firm produces these cost will always be there.
Variable cost is changes in direct proportion with the cost-driver it is the cost of per-unit basis. As a result, the total variable cost varies proportionately with the degree of the cost-driver. In other words when ACC decided to make the extra bulk order of Real Mint their cost drive also increased from 2,350 to 3,210. This means that the extra 1,000 (‘000 packs) increased the fixed cost by 860. Reason in deciding in variable cost is primarily because knowing how, and how much to produce a product will determine the outcome in profits.
Contribution Margin measures the amount of the individual product that ultimately contributes to net profit. This helps make decisions in regards to adding or subtracting a product, spend in existing product, or pricing a product. In addition it also helps determine structuring sales commission and bonuses. Looking at the bulk order scenario the contribution margins without the bulk order would have been 1,900 and with the additional order it

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