# Break-even Analysis Case

I need to design and develop a financial model that arrives at a correct answer/estimation for the specified problem, and supports future decision-making. In addition to solving the problem and creating the model, I need to prepare a spreadsheet/model map that documents use of the model for future users. The project will be graded on approach, execution, Excel skills, presentation, and critical thinking.

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In Year 1, Jay Company expects to sell 2,243 units at $110 per unit. Sales are expected to increase 25% each year for years 2-4. The unit sales price will remain the same. Labor is 23% of sales, Overhead 10%, Materials 5%, and Variable Sales and Admin, 4%. Fixed Costs, are Factory Overhead (2%) and Sales and Admin (4%). Interest expense of $425 is evenly budgeted over the period. The company tax rate is 20%.

a) Create the Sales Budget for the 4-year period.

b) Calculate the variable cost per unit based on the cost given.

c) Create a budgeted income statement for the 4-year period, using all the information provided and calculated.

d) Calculate the CM ratio, Unit CM, Breakeven in units, Breakeven in dollars for the total 4-year period.

e) If sales remain at the budgeted 4-year level, but fixed costs increase to $367,800, and the company wants to achieve target net income of $

$700,000, recalculate the CM ratio, Unit CM, Breakeven in units, Breakeven in dollars, and Target Breakeven in Units.

f) Create a breakeven chart for Jay Company based on unit increments of 250 and the revised fixed costs of $367,800. (Hint: You want to graph sales, fixed costs and total costs (total variable and fixed) on one scatter plot.)

#### Solution Preview

...sts, are Factory Overhead (2%) and Sales and Admin (4%). Interest expense of $425 is evenly budgeted over the period. The company tax rate is 20%.

a) Create the Sales Budget for the 4-year period.

b) Calculate the variable cost per unit based on the cost given.

c) Create a budgeted income statement for the 4-year ...