Description
The presentation describes about Deutsche Brauerei discusses Fund Flow Statement, Financial Forecasting, Break Even Analysis.
DEUTSCHE BRAUEREI
Fund Flow Statement ? Financial Forecasting ? Break Even Analysis
?
DEFINITION
?
Fund Flow Statement: The fund statement is statement summarizing the significant financial change which have occurred between the beginning and the end of a company’s accounting period. - Coleman
If the flow of fund is represented by changes in working capital, then a transaction involves changes on both current item and non current item. ? Every transaction has double entry. ? Transaction can involve
? ? ? ? ? ?
Change on current assets and on fixed assets (cash purchase of fixed assets) Change on current assets and on current assets (credit sale of inventory) Change on current assets and change on current liabilities (payment made to creditors) Change on current liabilities and change on current liabilities (short term loan taken to clear overdraft) Change on current liabilities and change on current liabilities (short term loan taken to clear overdraft)
DIFFERENT NAMES OF FUND-FLOW STATEMENT
A Funds Statement A statement of sources and uses of fund
A statement of sources and application of fund
Where got and where gone statement Inflow and outflow of fund statement
OBJECTIVES OF FUND FLOW STATEMENT
To help to understand the changes in assets and asset sources which are not readily evident in the income statement or financial statements.
To inform as to how the cans to the business have been used. To point out the financial strengths and weaknesses of the business
HOW TO PREPARE A FUND FLOW STATEMENT
Preparation of schedule changes in working capital (taking current items only).
Preparation of adjusted profit and loss account (to know fund from [or] fund lost in operations).
Preparation of accounts for non-current items (Ascertain the hidden information). Preparation of the fund flow statement.
IMPORTANCE OF FUNDS FLOW STATEMENT
?
Management
• review cash budgets • evaluation of alternative finance & investments • assessment of long-range forecasts of cash requirements & availability of liquid resources.
Investors
• measure as how the company has utilized the funds supplied by them & its financial strength • gauge the company capacity to generate funds from operations. • On the basis of comparative study of the past with the present, investors can locate & identify possible drains on funds in the near future.
? Effective
?
tools to the management for economic analysis
supplies additional information, which cannot be provided by financial statements, based on historical data.
? Explains
?
the relationship between changes in working capital & net profits.
shows the quantum of funds generated from operations.
? Helps
?
in the planning process of a company.
useful in assessing the resources available and the manner of utilization of resources.
? Funds
statement indicates the adequacy or inadequacy of working capital.
Explains the financial consequences of business activities ? provide explicit & clear awareness to questions regarding liquid & solvency positions of the company, distribution of dividend & whether the working capital has been effective or otherwise ? Forecasting in advance the requirements of additional capital & can plan its capital issue accordingly
?
? Provides
clues to the creditors & financial institutions as to the ability of a company to use funds effectively in the best interest of the investors, creditors & the owners of the company. ? The information contained in fund flow statement is more reliable, dependable & consistent as it is prepared to include funds generated from operations & not net profit after depreciation. ? Indicate how profits have been invested, whether investments in fixed assets or inventories or ploughed back.
FINANCIAL FORECASTING
Sources of Funds
NET INCOME Subtracting costs and expenses from the
total revenue
Net income
5000 4500 4311 4000 THOUSANDS OF EUROS 3724 3500 3000 2500 2000 1500 1000 500 0 1997.5 2646 2311 2915
1998
1998.5
1999
1999.5
2000 2000.5 YEARS
2001
2001.5
2002
2002.5
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Reduces the reported amount of accounts receivable
Increase in allowance for doubtful accounts
250
200 THOUSANDS OF EUROS
201
150
100
50
38 24 0 1997.5 7 1998 1998.5 1999 1999.5 2000 YEARS 2000.5 2001 2001.5
60
2002
2002.5
DEPRECIATION
Noncash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence
Depreciation
8000 THOUSANDS OF EUROS
7000
6000 5000 4000 3000 2000 1000 0 1997.5 1998 1998.5 1999 1999.5 2000 2000.5 YEARS 4314 5844 6068
7448 6766
2001
2001.5
2002
2002.5
SHORT-TERM DEBT
Any debt incurred by a company that is due within one year
Increase in short term debts
8000 7000 THOUSANDS OF EUROS 6000 5000 7249
4773
4000 3510
3000 2000 1000 0 1997.5
1768 1085
1998
1998.5
1999
1999.5
2000 2000.5 YEARS
2001
2001.5
2002
2002.5
ACCOUNTS PAYABLE
Represents an entity's obligation to pay off a short-term debt to its creditors
Increase in accounts payable
800 700 THOUSANDS OF EUROS 600 690 664
500
400 348 300 200 100 0 1997.5 177
492
1998
1998.5
1999
1999.5
2000 2000.5 YEARS
2001
2001.5
2002
2002.5
OTHER CURRENT LIABILITIES
Liabilities that are not assigned to common liabilities such as debt obligations or accounts payable
Increase in other current liabilities
1800 1600 1400 THOUSANDS OF EUROS 1200 1000 800 600 1635 1498 1462
1131
400
200 0 1997.5 -200 -36 1998 1998.5
1999
1999.5
2000
YEARS
2000.5
2001
2001.5
2002
2002.5
USES OF FUNDS
DIVIDEND PAYMENTS
Dividend payments
3500 3234 3000 2793 THOUSANDS OF EUROS
2500
2186 2000 1988 1734 1500
1000
500
0 1997
1998
1999
2000 YEARS
2001
2002
2003
?
Implies strong commitment to maintain high level of dividends in the future or company does not know how to effectively utilize the generated income
INCREASE IN CASH BALANCE balance Increases in cash
3000
2817
2500
THOUSANDS OF EUROS
2000 1630 1500 1234 1000 1634
1595
500
0 1997
1998
1999
2000 YEARS
2001
2002
2003
?
The company is having optimum cash balance hence maintaining sufficient working capital.
INCREASE IN ACCOUNTS RECEIVABLE (GERMANY)
Increases in accounts receivable (Germany)
350 300
296
THOUSANDS OF EUROS
250 230 200 209
150
144
100 79 50
0 1997
1998
1999
2000 YEARS
2001
2002
2003
?
No significant change as compared to Ukraine, due to a tight hold maintained on the distributors.
INCREASE IN ACCOUNTS RECEIVABLE (UKRAINE)
Increases in accounts receivable (Ukraine)
4000 3665 3500 3000 2500 2000 1500 1000 500 0 1997 2078 3074 2772
THOUSANDS OF EUROS
424
1998
1999
2000 YEARS
2001
2002
2003
?
Unfavorable, company is having trouble collecting money back from its distributors.
INCREASES IN INVENTORIES
Increases in inventories
6000
5000
5072
THOUSANDS OF EUROS
4000
3000
2000 1417 1000 267
1906
1861
0 1997
1998
1999
2000 YEARS
2001
2002
2003
?
Increase in the inventories of the company as company is working on improving the distribution channel.
INCREASES IN OTHER ASSETS
Increases in other assets
250 227 200
THOUSANDS OF EUROS
150
100 87
104
50
0 1997
1998
1999
2000
2001 -20
0 2002
2003
-50
YEARS
REDUCTION IN LONG-TERM DEBT
Reductions in long-term debt
9000 8563 8000 7000 THOUSANDS OF EUROS 6000 5000 4000 3000 2000 1000
943
943
943
943
0 1997
1998
1999
2000 YEARS
2001
2002
2003
?
The sound financial condition of the company has ensured the stable repayment of long term loans and would continue to do so in future.
CAPITAL EXPENDITURES
Capital expenditures
8000 7000 6980
6822
6000
THOUSANDS OF EUROS 5000 4000 3000 2000 1000 2247
0 1997
0 1998
1999
0 2000 YEARS
2001
2002
2003
?
There is a projected increase in the capital expenditure due to probable purchase or replacement of Property, Plant or Equipment.
BREAK EVEN ANALYSIS
BREAK EVEN POINT
Total Revenue = Total Cost ? Business makes just enough revenue to cover their costs ? Profit is zero ? Point at which a product starts to generate profit ? BEP = fixed cost / contribution per unit
?
BREAK EVEN ANALYSIS “BREAKEVEN ANALYSIS IS A MANAGEMENT
ACCOUNTING TOOL USED FOR PROFIT PLANNING OF A FIRM”
BREAK EVEN ANALYSIS DEPENDS ON:
Fixed cost
Variable cost
Products unit price
Products expected unit sales
BREAK EVEN ANALYSIS
?
Solves various managerial problems:
Explains relationship between cost, production volume and returns
Indicates lowest amount of business activity necessary to prevent losses
Setting price levels
Targeting various VC/FC combination
Determining financial attractiveness of different strategic options
BREAK EVEN CHART
?
Revenue against time or sales
USES:
Illustrate or forecast company's projected revenue Calculate the time for profitability to be reached
Predict the effect that changes in price will have on sales over time
Effect of changes in VC and FC on profitability
?
break-even point is the point at which Beer product stops costing DEUTSCHE BRAUEREI money to produce and sell, and starts to generate a profit for the company.
1997
1998
1999
2000
2001
2002
Sales: Germany Sales: Ukraine
62032 0
62653 4262
64219 17559
66216 25847
68203 37479
70249 48722
Total Net Sales
62032
66915
81778
92063
105682
118971
Operating Expenses
Variable cost
Production Cost & Expenses
32258
35366
44271
49827
61393
71609
Fixed cost
Administrative & Selling Expenses
12481
13014
16274
18505
18500
18500
Fixed cost
Depreciation
3609
4314
5844
6068
6766
7448
Variable cost Total Operating Cost
Excise duties
9143 57491
9108 61802 5113
10486 76875 4904
11557 85957 6106
11625 98284 7398
13087 110644 8327
Operating Profit
4541
Variable cost
Allowance for doubtful accounts Interest expense
5 1185
7 1064
38 1046
24 1304
201 1468
60 1634
Earning before taxes Income taxes
Net earning Dividends on Dividends to all common shares Retentions of earning
3351 1132
2219
4042 1396
2646
3821 1510
2311
4779 1864
2915
5729 2005
3724
6633 2322
4311
1669 550
198 658
1734 577
2186 729
2793 931
3234 1078
Break Even Analysis of DEUTSCHE BRAUEREI
1997
1998
1999
2000
2001
2002
Sales: Germany Sales: Ukraine Total Net Sales
62032 0 62032
62653 4262 66915
64219 17559 81778
66216 25847 92063
68203 37479 105682
70249 48722 118971
Production Cost & Expenses Excise duties
32258 9143
35366 9108
44271 10486
49827 11557
61393 11625
71609 13087
Allowance for doubtful accounts Total Variable Cost
5 41406
7 44481
38 54795
24 61408
201 73219
60 84756
Administrative & Selling Expenses Depreciation Total Fixed Cost
12481 3609 16090
13014 4314 17328
16274 5844 22118
18505 6068 24573
18500 6766 25266
18500 7448 25948
(€ per hectoliters)
Per unit Sales =
9206300/1173000 =
78.48508099
Per unit variable cost =
61408000/1173000 =
52.35123615
Contribution per unit =
Per unit Sales - Per unit variable cost =
26.13384484
Breakeven Point =
Fixed cost/Contribution per unit
24573000/26.13384 =
940274.9633
Hence Number of units requires to be sold to reach breakeven point=
940275 hectoliters
ABOVE BREAK-EVEN
19.85%
80.15%
Revenue calculated from the Breakeven volume sales =
breakeven point volume* per unit sale price
940275 hectoliters * 78.48508099 = € 73797559.53
(€ thousands) Net Sales Total Variable cost Contribution 92063000 61408000 30655000
Fixed Cost
Profit
24573000
6082000
c/m ratio = Contribution/ Margin =30655000/92063000 = 0.332978504 Break-Even Point = Fixed Cost / c/m ratio = 24573000/0.332978504 = € 73797556.65
This analysis identifies the break-even volume, where revenues just equal total costs and Deutsche Brauerei recovers all its fixed cost at the break-even volume sale. Sales above Break-even Point will bring profits for the company.
Margin of Safety (volume) =
Total volume Sold – Breakeven volume
1173000 – 940275 = 232725 hectoliters
Margin of Safety (Revenue) = per unit sale price * Margin of safety volume
= 78.48508099 * 232725 = € 18265440.47
Variable Cost for selling 232725 hectoliters = per unit variable cost * Margin of Safety (volume)
= 52.35123615 * 232725 = € 12183441.43
Deutsche Breuerei has already covered up fixed cost expense with break even volume sale hence they will make profit above the sale of break even volume.
Net profit = Margin of Safety (Revenue) - Variable Cost for selling 232725 hectoliters
= € 18265440.47 - € 12183441.43 = € 6081999.041
CONCLUSION
Hence Deutsche Breuerei should stick to the
current
price level of beer and profit planning.
Break even chart of Venture shows that if they can reduce the Production Cost in coming years through new facility and equipment they can increase the profits in long term. As the company is showing a healthy sales of good they can invest on production facility to reduce the per unit production cost and expenses to increases the overall profits.
doc_371879738.pptx
The presentation describes about Deutsche Brauerei discusses Fund Flow Statement, Financial Forecasting, Break Even Analysis.
DEUTSCHE BRAUEREI
Fund Flow Statement ? Financial Forecasting ? Break Even Analysis
?
DEFINITION
?
Fund Flow Statement: The fund statement is statement summarizing the significant financial change which have occurred between the beginning and the end of a company’s accounting period. - Coleman
If the flow of fund is represented by changes in working capital, then a transaction involves changes on both current item and non current item. ? Every transaction has double entry. ? Transaction can involve
? ? ? ? ? ?
Change on current assets and on fixed assets (cash purchase of fixed assets) Change on current assets and on current assets (credit sale of inventory) Change on current assets and change on current liabilities (payment made to creditors) Change on current liabilities and change on current liabilities (short term loan taken to clear overdraft) Change on current liabilities and change on current liabilities (short term loan taken to clear overdraft)
DIFFERENT NAMES OF FUND-FLOW STATEMENT
A Funds Statement A statement of sources and uses of fund
A statement of sources and application of fund
Where got and where gone statement Inflow and outflow of fund statement
OBJECTIVES OF FUND FLOW STATEMENT
To help to understand the changes in assets and asset sources which are not readily evident in the income statement or financial statements.
To inform as to how the cans to the business have been used. To point out the financial strengths and weaknesses of the business
HOW TO PREPARE A FUND FLOW STATEMENT
Preparation of schedule changes in working capital (taking current items only).
Preparation of adjusted profit and loss account (to know fund from [or] fund lost in operations).
Preparation of accounts for non-current items (Ascertain the hidden information). Preparation of the fund flow statement.
IMPORTANCE OF FUNDS FLOW STATEMENT
?
Management
• review cash budgets • evaluation of alternative finance & investments • assessment of long-range forecasts of cash requirements & availability of liquid resources.
Investors
• measure as how the company has utilized the funds supplied by them & its financial strength • gauge the company capacity to generate funds from operations. • On the basis of comparative study of the past with the present, investors can locate & identify possible drains on funds in the near future.
? Effective
?
tools to the management for economic analysis
supplies additional information, which cannot be provided by financial statements, based on historical data.
? Explains
?
the relationship between changes in working capital & net profits.
shows the quantum of funds generated from operations.
? Helps
?
in the planning process of a company.
useful in assessing the resources available and the manner of utilization of resources.
? Funds
statement indicates the adequacy or inadequacy of working capital.
Explains the financial consequences of business activities ? provide explicit & clear awareness to questions regarding liquid & solvency positions of the company, distribution of dividend & whether the working capital has been effective or otherwise ? Forecasting in advance the requirements of additional capital & can plan its capital issue accordingly
?
? Provides
clues to the creditors & financial institutions as to the ability of a company to use funds effectively in the best interest of the investors, creditors & the owners of the company. ? The information contained in fund flow statement is more reliable, dependable & consistent as it is prepared to include funds generated from operations & not net profit after depreciation. ? Indicate how profits have been invested, whether investments in fixed assets or inventories or ploughed back.
FINANCIAL FORECASTING
Sources of Funds
NET INCOME Subtracting costs and expenses from the
total revenue
Net income
5000 4500 4311 4000 THOUSANDS OF EUROS 3724 3500 3000 2500 2000 1500 1000 500 0 1997.5 2646 2311 2915
1998
1998.5
1999
1999.5
2000 2000.5 YEARS
2001
2001.5
2002
2002.5
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Reduces the reported amount of accounts receivable
Increase in allowance for doubtful accounts
250
200 THOUSANDS OF EUROS
201
150
100
50
38 24 0 1997.5 7 1998 1998.5 1999 1999.5 2000 YEARS 2000.5 2001 2001.5
60
2002
2002.5
DEPRECIATION
Noncash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence
Depreciation
8000 THOUSANDS OF EUROS
7000
6000 5000 4000 3000 2000 1000 0 1997.5 1998 1998.5 1999 1999.5 2000 2000.5 YEARS 4314 5844 6068
7448 6766
2001
2001.5
2002
2002.5
SHORT-TERM DEBT
Any debt incurred by a company that is due within one year
Increase in short term debts
8000 7000 THOUSANDS OF EUROS 6000 5000 7249
4773
4000 3510
3000 2000 1000 0 1997.5
1768 1085
1998
1998.5
1999
1999.5
2000 2000.5 YEARS
2001
2001.5
2002
2002.5
ACCOUNTS PAYABLE
Represents an entity's obligation to pay off a short-term debt to its creditors
Increase in accounts payable
800 700 THOUSANDS OF EUROS 600 690 664
500
400 348 300 200 100 0 1997.5 177
492
1998
1998.5
1999
1999.5
2000 2000.5 YEARS
2001
2001.5
2002
2002.5
OTHER CURRENT LIABILITIES
Liabilities that are not assigned to common liabilities such as debt obligations or accounts payable
Increase in other current liabilities
1800 1600 1400 THOUSANDS OF EUROS 1200 1000 800 600 1635 1498 1462
1131
400
200 0 1997.5 -200 -36 1998 1998.5
1999
1999.5
2000
YEARS
2000.5
2001
2001.5
2002
2002.5
USES OF FUNDS
DIVIDEND PAYMENTS
Dividend payments
3500 3234 3000 2793 THOUSANDS OF EUROS
2500
2186 2000 1988 1734 1500
1000
500
0 1997
1998
1999
2000 YEARS
2001
2002
2003
?
Implies strong commitment to maintain high level of dividends in the future or company does not know how to effectively utilize the generated income
INCREASE IN CASH BALANCE balance Increases in cash
3000
2817
2500
THOUSANDS OF EUROS
2000 1630 1500 1234 1000 1634
1595
500
0 1997
1998
1999
2000 YEARS
2001
2002
2003
?
The company is having optimum cash balance hence maintaining sufficient working capital.
INCREASE IN ACCOUNTS RECEIVABLE (GERMANY)
Increases in accounts receivable (Germany)
350 300
296
THOUSANDS OF EUROS
250 230 200 209
150
144
100 79 50
0 1997
1998
1999
2000 YEARS
2001
2002
2003
?
No significant change as compared to Ukraine, due to a tight hold maintained on the distributors.
INCREASE IN ACCOUNTS RECEIVABLE (UKRAINE)
Increases in accounts receivable (Ukraine)
4000 3665 3500 3000 2500 2000 1500 1000 500 0 1997 2078 3074 2772
THOUSANDS OF EUROS
424
1998
1999
2000 YEARS
2001
2002
2003
?
Unfavorable, company is having trouble collecting money back from its distributors.
INCREASES IN INVENTORIES
Increases in inventories
6000
5000
5072
THOUSANDS OF EUROS
4000
3000
2000 1417 1000 267
1906
1861
0 1997
1998
1999
2000 YEARS
2001
2002
2003
?
Increase in the inventories of the company as company is working on improving the distribution channel.
INCREASES IN OTHER ASSETS
Increases in other assets
250 227 200
THOUSANDS OF EUROS
150
100 87
104
50
0 1997
1998
1999
2000
2001 -20
0 2002
2003
-50
YEARS
REDUCTION IN LONG-TERM DEBT
Reductions in long-term debt
9000 8563 8000 7000 THOUSANDS OF EUROS 6000 5000 4000 3000 2000 1000
943
943
943
943
0 1997
1998
1999
2000 YEARS
2001
2002
2003
?
The sound financial condition of the company has ensured the stable repayment of long term loans and would continue to do so in future.
CAPITAL EXPENDITURES
Capital expenditures
8000 7000 6980
6822
6000
THOUSANDS OF EUROS 5000 4000 3000 2000 1000 2247
0 1997
0 1998
1999
0 2000 YEARS
2001
2002
2003
?
There is a projected increase in the capital expenditure due to probable purchase or replacement of Property, Plant or Equipment.
BREAK EVEN ANALYSIS
BREAK EVEN POINT
Total Revenue = Total Cost ? Business makes just enough revenue to cover their costs ? Profit is zero ? Point at which a product starts to generate profit ? BEP = fixed cost / contribution per unit
?
BREAK EVEN ANALYSIS “BREAKEVEN ANALYSIS IS A MANAGEMENT
ACCOUNTING TOOL USED FOR PROFIT PLANNING OF A FIRM”
BREAK EVEN ANALYSIS DEPENDS ON:
Fixed cost
Variable cost
Products unit price
Products expected unit sales
BREAK EVEN ANALYSIS
?
Solves various managerial problems:
Explains relationship between cost, production volume and returns
Indicates lowest amount of business activity necessary to prevent losses
Setting price levels
Targeting various VC/FC combination
Determining financial attractiveness of different strategic options
BREAK EVEN CHART
?
Revenue against time or sales
USES:
Illustrate or forecast company's projected revenue Calculate the time for profitability to be reached
Predict the effect that changes in price will have on sales over time
Effect of changes in VC and FC on profitability
?
break-even point is the point at which Beer product stops costing DEUTSCHE BRAUEREI money to produce and sell, and starts to generate a profit for the company.
1997
1998
1999
2000
2001
2002
Sales: Germany Sales: Ukraine
62032 0
62653 4262
64219 17559
66216 25847
68203 37479
70249 48722
Total Net Sales
62032
66915
81778
92063
105682
118971
Operating Expenses
Variable cost
Production Cost & Expenses
32258
35366
44271
49827
61393
71609
Fixed cost
Administrative & Selling Expenses
12481
13014
16274
18505
18500
18500
Fixed cost
Depreciation
3609
4314
5844
6068
6766
7448
Variable cost Total Operating Cost
Excise duties
9143 57491
9108 61802 5113
10486 76875 4904
11557 85957 6106
11625 98284 7398
13087 110644 8327
Operating Profit
4541
Variable cost
Allowance for doubtful accounts Interest expense
5 1185
7 1064
38 1046
24 1304
201 1468
60 1634
Earning before taxes Income taxes
Net earning Dividends on Dividends to all common shares Retentions of earning
3351 1132
2219
4042 1396
2646
3821 1510
2311
4779 1864
2915
5729 2005
3724
6633 2322
4311
1669 550
198 658
1734 577
2186 729
2793 931
3234 1078
Break Even Analysis of DEUTSCHE BRAUEREI
1997
1998
1999
2000
2001
2002
Sales: Germany Sales: Ukraine Total Net Sales
62032 0 62032
62653 4262 66915
64219 17559 81778
66216 25847 92063
68203 37479 105682
70249 48722 118971
Production Cost & Expenses Excise duties
32258 9143
35366 9108
44271 10486
49827 11557
61393 11625
71609 13087
Allowance for doubtful accounts Total Variable Cost
5 41406
7 44481
38 54795
24 61408
201 73219
60 84756
Administrative & Selling Expenses Depreciation Total Fixed Cost
12481 3609 16090
13014 4314 17328
16274 5844 22118
18505 6068 24573
18500 6766 25266
18500 7448 25948
(€ per hectoliters)
Per unit Sales =
9206300/1173000 =
78.48508099
Per unit variable cost =
61408000/1173000 =
52.35123615
Contribution per unit =
Per unit Sales - Per unit variable cost =
26.13384484
Breakeven Point =
Fixed cost/Contribution per unit
24573000/26.13384 =
940274.9633
Hence Number of units requires to be sold to reach breakeven point=
940275 hectoliters
ABOVE BREAK-EVEN
19.85%
80.15%
Revenue calculated from the Breakeven volume sales =
breakeven point volume* per unit sale price
940275 hectoliters * 78.48508099 = € 73797559.53
(€ thousands) Net Sales Total Variable cost Contribution 92063000 61408000 30655000
Fixed Cost
Profit
24573000
6082000
c/m ratio = Contribution/ Margin =30655000/92063000 = 0.332978504 Break-Even Point = Fixed Cost / c/m ratio = 24573000/0.332978504 = € 73797556.65
This analysis identifies the break-even volume, where revenues just equal total costs and Deutsche Brauerei recovers all its fixed cost at the break-even volume sale. Sales above Break-even Point will bring profits for the company.
Margin of Safety (volume) =
Total volume Sold – Breakeven volume
1173000 – 940275 = 232725 hectoliters
Margin of Safety (Revenue) = per unit sale price * Margin of safety volume
= 78.48508099 * 232725 = € 18265440.47
Variable Cost for selling 232725 hectoliters = per unit variable cost * Margin of Safety (volume)
= 52.35123615 * 232725 = € 12183441.43
Deutsche Breuerei has already covered up fixed cost expense with break even volume sale hence they will make profit above the sale of break even volume.
Net profit = Margin of Safety (Revenue) - Variable Cost for selling 232725 hectoliters
= € 18265440.47 - € 12183441.43 = € 6081999.041
CONCLUSION
Hence Deutsche Breuerei should stick to the
current
price level of beer and profit planning.
Break even chart of Venture shows that if they can reduce the Production Cost in coming years through new facility and equipment they can increase the profits in long term. As the company is showing a healthy sales of good they can invest on production facility to reduce the per unit production cost and expenses to increases the overall profits.
doc_371879738.pptx