The document discusses key concepts in break-even analysis including:
- Fixed and variable costs and how they relate to total costs.
- How to calculate break-even point using contribution margin.
- How break-even analysis can be used to determine output levels required for target profits.
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Website Development Company is fastest growing company in the IT market for the website design and development. we are best website development company in India as well as in USA we are based in Noida and Delhi NCR. Website development company is powered by Css Founder.com
Decision making is the process of evaluating two or more alternative’s leading to a final choice.This presentation illustrates caselets which narrate various day to day situations in which an organization has to make a choice
Business Canvas and SWOT Analysis For mo.docxhallettfaustina
Business Canvas and SWOT Analysis
*For more detailed information see TVP2.0*
Key Partners
Rhode Island Fight
Club direct
customer
information line:
(401)316-5779.
National Food
Truck Festival
information line:
(617)254-9500.
Owners and
master brewers. Ex.
Startline Brewery,
Wormtown
Brewery, and
Treehouse Brewery.
Key Activities
Providence Festival
contact.
Reach out to
brewery owners
and gain interest.
Value Proposition
Food Truck Festival
networking.
Microbrewery
sponsorship event.
Logo exposure via
Rhode Island Food
Fight Coupons.
3rd Annual
Providence Food
Truck & Craft Beer
Festival in
Providence, RI on
August 5th, 2018.
Customer
Relationships
Entrepreneurial
Partnerships.
Target market
focuses on
transparent
professional
environments.
Customer Segments
Local college
students.
New restaurants in
the region.
Brewery’s and
Food Truck owners.
Commercial
Customers.
Immigration heavy
regions for focus
on building kitchen
staff database.
Key Resources
Respect for brand.
Strong virtual
infrastructure for
potential
consumers.
Leverage existing
entrepreneurial
relationships.
Channels
Communication
Channel: Web and
Application based.
Public Relations
Channels: Social
Media presence.
Create a hashtag
targeted towards
worker base.
Cost Structure
Highest Key Activity Cost – Rhode Island Food Fight logo
exposure via purchased space on their coupons.
The Food and Craft Beer Festival and Microbrewery’s requires
minimal costs and focus on a mutually beneficial agreement
based on the benefit of brand exposure.
Revenue Streams
Increased revenue can be seen via networking exposure.
Becoming involved in popular events for the target market is a
low cost, high profit venture.
Results could be measured with the App with a small
modification to the software.
Business Canvas and SWOT Analysis
*For more detailed information see TVP2.0*
Strengths
Affordable and convenient
Current northeast American culture
(Immediate Satisfaction)
Dual benefits for employees and employers
Experience in the restaurant industry
Knowledge of the needs
First-Mover Advantage
Weaknesses
Customer retention: Restaurant owners are
continuously cancelling and reinstating their
subscriptions
Low employee/worker database
Low consumer awareness
Little social media presence
S.W.O.T. Analysis
Opportunities
Microbrewery’s are popular among the target
market
College campuses (population of 2 million)
Social Media movements
Food Truck Festivals are an ideal way of
connecting with possible employers and food
lovers.
Threats
Loss of Momentum
Piggy backers
Economic fluctuations
As of now, SpinGig does not have any immediate ...
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
Website Development Company is fastest growing company in the IT market for the website design and development. we are best website development company in India as well as in USA we are based in Noida and Delhi NCR. Website development company is powered by Css Founder.com
Decision making is the process of evaluating two or more alternative’s leading to a final choice.This presentation illustrates caselets which narrate various day to day situations in which an organization has to make a choice
Business Canvas and SWOT Analysis For mo.docxhallettfaustina
Business Canvas and SWOT Analysis
*For more detailed information see TVP2.0*
Key Partners
Rhode Island Fight
Club direct
customer
information line:
(401)316-5779.
National Food
Truck Festival
information line:
(617)254-9500.
Owners and
master brewers. Ex.
Startline Brewery,
Wormtown
Brewery, and
Treehouse Brewery.
Key Activities
Providence Festival
contact.
Reach out to
brewery owners
and gain interest.
Value Proposition
Food Truck Festival
networking.
Microbrewery
sponsorship event.
Logo exposure via
Rhode Island Food
Fight Coupons.
3rd Annual
Providence Food
Truck & Craft Beer
Festival in
Providence, RI on
August 5th, 2018.
Customer
Relationships
Entrepreneurial
Partnerships.
Target market
focuses on
transparent
professional
environments.
Customer Segments
Local college
students.
New restaurants in
the region.
Brewery’s and
Food Truck owners.
Commercial
Customers.
Immigration heavy
regions for focus
on building kitchen
staff database.
Key Resources
Respect for brand.
Strong virtual
infrastructure for
potential
consumers.
Leverage existing
entrepreneurial
relationships.
Channels
Communication
Channel: Web and
Application based.
Public Relations
Channels: Social
Media presence.
Create a hashtag
targeted towards
worker base.
Cost Structure
Highest Key Activity Cost – Rhode Island Food Fight logo
exposure via purchased space on their coupons.
The Food and Craft Beer Festival and Microbrewery’s requires
minimal costs and focus on a mutually beneficial agreement
based on the benefit of brand exposure.
Revenue Streams
Increased revenue can be seen via networking exposure.
Becoming involved in popular events for the target market is a
low cost, high profit venture.
Results could be measured with the App with a small
modification to the software.
Business Canvas and SWOT Analysis
*For more detailed information see TVP2.0*
Strengths
Affordable and convenient
Current northeast American culture
(Immediate Satisfaction)
Dual benefits for employees and employers
Experience in the restaurant industry
Knowledge of the needs
First-Mover Advantage
Weaknesses
Customer retention: Restaurant owners are
continuously cancelling and reinstating their
subscriptions
Low employee/worker database
Low consumer awareness
Little social media presence
S.W.O.T. Analysis
Opportunities
Microbrewery’s are popular among the target
market
College campuses (population of 2 million)
Social Media movements
Food Truck Festivals are an ideal way of
connecting with possible employers and food
lovers.
Threats
Loss of Momentum
Piggy backers
Economic fluctuations
As of now, SpinGig does not have any immediate ...
how to sell pi coins effectively (from 50 - 100k pi)DOT TECH
Anywhere in the world, including Africa, America, and Europe, you can sell Pi Network Coins online and receive cash through online payment options.
Pi has not yet been launched on any exchange because we are currently using the confined Mainnet. The planned launch date for Pi is June 28, 2026.
Reselling to investors who want to hold until the mainnet launch in 2026 is currently the sole way to sell.
Consequently, right now. All you need to do is select the right pi network provider.
Who is a pi merchant?
An individual who buys coins from miners on the pi network and resells them to investors hoping to hang onto them until the mainnet is launched is known as a pi merchant.
debuts.
I'll provide you the Telegram username
@Pi_vendor_247
The European Unemployment Puzzle: implications from population agingGRAPE
We study the link between the evolving age structure of the working population and unemployment. We build a large new Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices, and aggregate shocks. Once calibrated to the European economy, we quantify the extent to which demographic changes over the last three decades have contributed to the decline of the unemployment rate. Our findings yield important implications for the future evolution of unemployment given the anticipated further aging of the working population in Europe. We also quantify the implications for optimal monetary policy: lowering inflation volatility becomes less costly in terms of GDP and unemployment volatility, which hints that optimal monetary policy may be more hawkish in an aging society. Finally, our results also propose a partial reversal of the European-US unemployment puzzle due to the fact that the share of young workers is expected to remain robust in the US.
Abhay Bhutada Leads Poonawalla Fincorp To Record Low NPA And Unprecedented Gr...Vighnesh Shashtri
Under the leadership of Abhay Bhutada, Poonawalla Fincorp has achieved record-low Non-Performing Assets (NPA) and witnessed unprecedented growth. Bhutada's strategic vision and effective management have significantly enhanced the company's financial health, showcasing a robust performance in the financial sector. This achievement underscores the company's resilience and ability to thrive in a competitive market, setting a new benchmark for operational excellence in the industry.
What price will pi network be listed on exchangesDOT TECH
The rate at which pi will be listed is practically unknown. But due to speculations surrounding it the predicted rate is tends to be from 30$ — 50$.
So if you are interested in selling your pi network coins at a high rate tho. Or you can't wait till the mainnet launch in 2026. You can easily trade your pi coins with a merchant.
A merchant is someone who buys pi coins from miners and resell them to Investors looking forward to hold massive quantities till mainnet launch.
I will leave the telegram contact of my personal pi vendor to trade with.
@Pi_vendor_247
5 Tips for Creating Standard Financial ReportsEasyReports
Well-crafted financial reports serve as vital tools for decision-making and transparency within an organization. By following the undermentioned tips, you can create standardized financial reports that effectively communicate your company's financial health and performance to stakeholders.
how to sell pi coins in South Korea profitably.DOT TECH
Yes. You can sell your pi network coins in South Korea or any other country, by finding a verified pi merchant
What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
Tele gram: @Pi_vendor_247
#pi #sell #nigeria #pinetwork #picoins #sellpi #Nigerian #tradepi #pinetworkcoins #sellmypi
Seminar: Gender Board Diversity through Ownership NetworksGRAPE
Seminar on gender diversity spillovers through ownership networks at FAME|GRAPE. Presenting novel research. Studies in economics and management using econometrics methods.
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
However, Pi Network has announced plans to launch its Testnet and Mainnet in the future, which may include listing Pi on exchanges.
The current method for selling pi coins involves exchanging them with a pi vendor who purchases pi coins for investment reasons.
If you want to sell your pi coins, reach out to a pi vendor and sell them to anyone looking to sell pi coins from any country around the globe.
Below is the contact information for my personal pi vendor.
Telegram: @Pi_vendor_247
This presentation poster infographic delves into the multifaceted impacts of globalization through the lens of Nike, a prominent global brand. It explores how globalization has reshaped Nike's supply chain, marketing strategies, and cultural influence worldwide, examining both the benefits and challenges associated with its global expansion.
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1. Elemental Economics - Introduction to mining.pdfNeal Brewster
After this first you should: Understand the nature of mining; have an awareness of the industry’s boundaries, corporate structure and size; appreciation the complex motivations and objectives of the industries’ various participants; know how mineral reserves are defined and estimated, and how they evolve over time.
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
Yes of course, you can easily start mining pi network coin today and sell to legit pi vendors in the United States.
Here the telegram contact of my personal vendor.
@Pi_vendor_247
#pi network #pi coins #legit #passive income
#US
3. There are two basic types of costs a company incurs.
• Variable Costs
• Fixed Costs
Variable costs are costs that change with changes in production levels or sales.
Examples include: Costs of materials used in the production of the goods.
Fixed costs remain roughly the same regardless of sales/output levels.
Examples include: Rent, Insurance and Wages
Break-Even Analysis
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Hamed.Ali.Mohamed2@gmail.com 3
4. Break-Even Analysis
TOTAL COSTS
Total Costs is simply Fixed Costs and Variable Costs added
together.
TC = FC + VC
As Total Costs include some of the Variable Costs then
Total Costs will also change with any changes in
output/sales.
If output/sales rise then so will Total Costs.
If output/sales fall then so will Total Costs.
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Hamed.Ali.Mohamed2@gmail.com 4
5. Breakeven analysis examines the short run
relationship between changes in volume and changes
in total sales revenue, expenses and net profit
Also known as C-V-P analysis (Cost Volume Profit
Analysis)
It’s The Point of sales at which the entity earns no
profit and sustains no loss.
Contribution Margin Ratio =
Contribution margin / Sales x 100
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6. C-V-P analysis is an important tool in terms of
short-term planning and decision making.
It looks at the relationship between costs,
revenue, output levels and profit.
Short run decisions where C-V-P is used include
choice of sales mix, pricing policy etc.
Contribution margin – Fixed cost = 0 Profit
Contribution margin = Fixed cost + 0 Profit
At break even point the target contribution is equal to the fixed cost
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7. How many units must be sold to breakeven?
How many units must be sold to achieve a target
profit?
Should a special order be accepted?
How will profits be affected if we introduce a
new product or service?
Contribution Margin – Fixed cost = Profit
Contribution margin = Fixed cost + Profit
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Hamed.Ali.Mohamed2@gmail.com 7
8. Break even point:-the point at which a company
makes neither a profit or a loss.
Contribution per unit:-the sales price minus the
variable cost per unit. It measures the
contribution made by each item of output to the
fixed costs and profit of the organisation.
Break even sales in SR = Target CM / Contribution to sales ratio
Break even in units = Target CM / Contribution margin per unit
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Hamed.Ali.Mohamed2@gmail.com 8
9. Margin of safety:-a measure in which the
budgeted volume of sales is compared with the
volume of sales required to break even.
Marginal Cost :– cost of producing one extra
unit of output
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10. First calculate the Unit Contribution
SP – VC = Unit Contribution
Sr 6.00 – sr 3.00 = sr 3.00
Now calculate Break Even point by using the formula –
Fixed Costs Unit Contribution
Sr 1,200 sr 3.00 = 400 units
Therefore 400 units must be sold in order to Break Even
Break-Even Analysis SP = sr 6.00
VC = sr 3.00
FC = sr 1,200
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11. Break Even can also be used to calculate Profit (or
Loss) at a given level of output
For example:
Fuchsia sells Mamoul boxes. How much profit/loss is
made when 5000 Mamoul Boxes are sold?
Each Mamoul Box is sold for 20 sr.
Variable Costs per Mamoul Box are 10 sr.
Fixed Costs total 24,000 sr.
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12. Firstly, calculate Unit Contribution
SP – VC = Unit Contribution
sr 20.00 – sr 10.00 = sr 10.00
Now calculate Total Contribution when 5,000 Mamoul Boxes
are sold.
Unit Contribution x no of units = Total Contribution
Sr 10.00 x 5,000 = sr 50,000
Now calculate Net Profit at 5,000 units
Total Contribution – Fixed Costs = Net Profit
Sr 50,000 – sr 24,000 = sr 26,000
SP = sr 20.00
VC = sr 10.00
FC = sr 24,000
Sales = 5,000 units
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13. Another Example
Calculate how many units need to be produced in
order to achieve a Net Profit of sr 25,000 given the
following information
Fixed Costs sr 30,000
Contribution per unit sr 10
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14. Net Profit = Total Contribution – Fixed Cost
Sr 25,000 = Total Contribution – sr 30,000
therefore Total Contribution = sr 55,000
If unit contribution is sr 10
then 5,500 units will have to be produced in order to
achieve a Total Contribution of sr 55,000.
Therefore the number of units required to achieve a
Net Profit of sr 25,000 is 5,500 units
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15. The formula used so far assumes that Unit Costs are
known ie Unit Selling Price and Unit Variable Cost
When no unit costs are known, the Profit/Volume Ratio
should be used instead
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16. P/V Ratio (Profit/Volume Ratio) =
Total Contribution / Sales x 100
If asked to calculate the volume of sales needed
to Break-Even (when no unit costs are given)
the following formula should be used:
Sales at BEP = Fixed Costs / Profit/Volume Ratio
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17. For Example
Sales sr 60,000
Variable Costs sr 24,000
Fixed Costs sr 14,000
Calculate the P/V Ratio and the BEP
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18. Sales – Variable Costs = Total Contribution
Sr 60,000 – sr 24,000 = sr 36,000
Total Contribution / Sales = P/V Ratio
(sr 36,000 / sr 60,000) x 100 = 60%
Fixed Costs / P/V Ratio = Sales at BEP
Sr 14,000 / 60% = sr 23,333
Therefore sr 23,333 of Sales are necessary in
order to Break-Even
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19. Costs/Revenue
Output/Sales
FC
VC
TC
TR
The Break-even point
occurs where total
revenue equals total
costs – the firm, in this
example would have to
sell Q1 to generate
sufficient revenue
(income) to cover its
total costs.
Q1
BEP
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21. The difference between budgeted or actual sales
and the breakeven point
The margin of safety may be expressed in units or
revenue terms
Shows the amount by which sales can drop before
a loss will be incurred
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22. Using the following data, calculate the
breakeven point and margin of safety in units:
Selling Price = sr 50
Variable Cost = sr 40
Fixed Cost = sr 70,000
Budgeted Sales = 7,500 units
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23. Contribution = sr 50 – sr 40 = sr 10 per unit
Breakeven point = sr 70,000/sr 10 = 7,000 units
Margin of safety = 7500 – 7000 = 500 units
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24. What if a firm doesn’t just want to breakeven – it
requires a target profit
Contribution per unit will need to cover profit as
well as fixed costs
Required profit is treated as an addition to Fixed
Costs
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25. Using the following data, calculate the level of
sales required to generate a profit of sr 10,000:
Selling Price = sr 35
Variable Cost = sr 20
Fixed Costs = sr 50,000
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26. Contribution = sr 35 – sr 20 = sr 15
Level of sales required to generate profit of sr
10,000:
Sr 50,000 + sr 10,000
Sr 15
=4000 units
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27. Costs are either fixed or variable
Fixed and variable costs are clearly discernable
over the whole range of output
Production = Sales
One product/constant sales mix
Selling price remains constant
Efficiency remains unchanged
Volume is the only factor affecting costs
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28. Absorption
Fixed costs included in
Product Cost
FC not treated as period cost –
closing/opening stock values
Under/over absorption of
costs
Complies with Financial
Accounting standards
Marginal
Fixed costs not included
in Product Cost
FC treated as period cost
No under/over
absorption of costs
Does not comply with
Financial Accounting
standards
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29. • A business may produce a number of products but at the
same time be unable to meet total demand for all products
due to a limiting factor eg machine hours or labour hours.
• In this case the business would decide on the optimum use
of the limited resource by producing all of the demand for
the product which yields the highest contribution per the
limiting factor.
• Having produced all of the demand from that product, the
business would produce the next highest contribution per
the limiting factor and so on until full capacity is reached.
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30. A business can produce Products A, B and C.
A B C
Contribution per labour
hour
Sr 2 Sr 1 Sr 3
Labour hours per unit 4 4 3
Total demand in units 5,000 5,000 10,000
The factory is limited to 60,000 labour hours.
How many units of each Product should be produced to maximise
profit?
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31. Produce in the order of the highest Contribution
per Labour Hour ie C then A then B
C A
Demand 10,000 5,000
Labour hrs/unit 3 4
Total lab hrs 30,000 20,000
Total labour hours required to produce all demand for C then A =
50,000 labour hours.
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32. If Total Labour hours available equals 60,000
and 50,000 is used producing Products C and A,
then 10,000 labour hours are left to produce as
many units as possible for Product B
Product B uses 4 labour hours per unit, therefore
only 2,500 units of Product B can be produced
within the available 60,000 labour hours
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33. All Fixed and Variable costs can be identified
Variable costs are assumed to vary directly with
output
Fixed costs will remain constant
Selling prices are assumed to remain constant for
all levels of output
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34. The sales mix of products will remain constant –
break even charts cannot handle multi-product
situations
It is assumed that all production will be sold
The volume of activity is the only relevant factor
which will affect costs
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35. Some costs cannot be identified as precisely
Fixed or Variable
Semi-variable costs cannot be easily
accommodated in break-even analysis
Costs and revenues tend not to be constant
With Fixed costs the assumption that they are
constant over the whole range of output from
zero to maximum capacity is unrealistic
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36. Price reduction may be necessary to protect
sales in the face of increased competition
The sales mix may change with changes in
tastes and fashions
Productivity may be affected by strikes and
absenteeism
The balance between Fixed and Variable
costs may be altered by new technology
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38. The Point at which Revenues = Costs
Revenues above the breakeven point result in profit
Revenues below the breakeven point result in loss
May be measured in units of output or revenue
dollars
Represents a “Reality Check”
Is this level of revenue reasonable?
If not, what actions would yield a reasonable breakeven
point?
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39. Fixed Costs - Costs that do not change in
total with the volume produced or sold
Variable Costs - Costs that change in direct
proportion with the volume produced or
sold
Mixed Costs - A combination of fixed and
variable costs
Semi-variable Cost - Costs that change with
volume produced, but not in direct
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40. Fixed Costs - Costs that do not change in total with
the volume produced or sold.
Variable Costs - Costs that change in direct
proportion with the volume produced or sold.
Mixed Costs - A combination of fixed and variable
costs.
Semi-variable Cost - Costs that change with volume
produced, but not in direct proportion
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50. 50
Raw materials & purchased parts
Incoming students
Work in progress
Current students
Finished-goods inventories
(manufacturing firms) or merchandise (retail stores)
Graduating students
Replacement parts, tools, & supplies
Goods-in-transit to warehouses or customers
Students on leave
51. 51
To meet anticipated demand
To smooth production requirements
To decouple components of the production-
distribution
To protect against stock-outs
To take advantage of order cycles
To help hedge against price increases or to take
advantage of quantity discounts
To permit operations
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Inventory level
Low or high
Customer service levels
Can you deliver what customer wants?
Right goods, right place, right time, right quantity
Inventory turnover
Cost of goods sold per year / average inventory investment
Inventory costs, more will come
Costs of ordering & carrying inventories
Decisions: Order size and time
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A physical count of items in inventory
Periodic/Cycle Counting System: Physical count of
items made at periodic intervals
How much accuracy is needed?
When should cycle counting be performed?
Who should do it?
Continuous Counting System
System that keeps track of
removals from inventory
continuously, thus monitoring
current levels of each item
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Two-Bin System - Two containers of inventory;
reorder when the first is empty.
Universal Bar Code - Bar code printed on a label
that has information about the item to which it is
attached.
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Lead time: time interval between ordering and
receiving the order, denoted by LT
Holding (carrying) costs: cost to carry an item in
inventory for a length of time, usually a year, denoted
by H
Ordering costs: costs of ordering and receiving
inventory, denoted by S
Shortage costs: costs when demand exceeds supply
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A system to keep track of inventory
A reliable forecast of demand
Knowledge of lead times
Reasonable estimates of
Holding costs
Ordering costs
Shortage costs
A classification system
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Classifying inventory according to some measure of
importance and allocating control efforts accordingly.
Importance measure= price*annual sales
A - very important
B - mod. important
C - least important
Annual
$ volume
of items
A
B
C
High
Low
Few Many
Number of Items
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Fixed Order Size - Variable Order Interval Models:
1. Economic Order Quantity, EOQ
2. Economic Production Quantity, EPQ
3. EOQ with quantity discounts
All units quantity discount
3.1. Constant holding cost
3.2. Proportional holding cost
4. Reorder point, ROP
Lead time service level
Fill rate
Fixed Order Interval - Variable Order Size Model
5. Fixed Order Interval model, FOI
Single Order Model
6. Newsboy model
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Assumptions:
Only one product is involved
Annual demand requirements known
Demand is even throughout the year
Lead time does not vary
Each order is received in a single delivery
Infinite production capacity
There are no quantity discounts
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Profile of Inventory Level Over Time
Quantity
on hand
Q
Receive
order
Place
order
Receive
order
Place
order
Receive
order
Lead time
Reorder
point
Usage
rate
Time
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Length of an inventory cycle
From one order to the next = Q/D
Inventory held over entire inventory cycle
Area under the inventory level = ½ Q (Q/D)
Average inventory held
= Inventory held over a cycle / cycle length
= Q/2
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Order Quantity
(Q)
The Total-Cost Curve is U-Shaped
Ordering Costs
QO
Annual
Cost
(optimal order quantity)
TC
Q
H
D
Q
S
2
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Using calculus, we take the derivative of the total
cost function and set the derivative (slope) equal
to zero and solve for Q.
The total cost curve reaches its minimum where
the carrying and ordering costs are equal.
Q =
2DS
H
=
2(Annual Demand )(Order or Setup Cost )
Annual Holding Cost
OPT
DSH
EOQ
Q 2
)
cost(
Total
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66. Demand, D = 12,000 computers per year.
Holding cost, H = 100 per item per year. Fixed cost, S =
$4,000/order.
Find EOQ, Cycle Inventory, Optimal Reorder Interval
and Optimal Ordering Frequency.
EOQ = 979.79, say 980 computers
Cycle inventory = EOQ/2 = 490 units
Optimal Reorder interval, T = 0.0816 year = 0.98 month
Optimal ordering frequency, n=12.24 orders per year.
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69. 69
Production done in batches or lots
Capacity to produce a part exceeds the part’s
usage or demand rate
Assumptions of EPQ are similar to EOQ except
orders are received incrementally during
production
This corresponds to producing for an order with finite
production capacity
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Only one item is involved
Annual demand is known
Usage rate is constant
Usage occurs continually
Production rate p is constant
Lead time does not vary
No quantity discounts
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Demand, D = 12,000 computers per year. p=20,000
per year. Holding cost, H = 100 per item per year.
Fixed cost, S = $4,000/order.
Find EPQ.
EPQ = EOQ*sqrt(p/(p-D))
=979.79*sqrt(20/8)=1549 computers
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Deterministic demand case
Anticipation stock
For known future demand
Cycle stock
For convenience, some operations are performed occasionally and stock
is used at other times
Why to buy eggs in boxes of 12?
Pipeline stock or Work in Process
Stock in transfer, transformation. Necessary for operations.
Students in the class
Stochastic demand case
Safety stock
Stock against demand variations
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Reorder Point - When the quantity on hand of an
item drops to this amount, the item is reordered.
We call it ROP.
Safety Stock - Stock that is held in excess of
expected demand due to variable demand rate
and/or lead time. We call it ss.
(lead time) Service Level - Probability that
demand will not exceed supply during lead time.
We call this cycle service level, CSL.
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LT Time
Expected demand
during lead time
Maximum probable demand
during lead time
ROP
Quantity
Safety stock
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Cycle service level: percentage of cycles with
shortage
ROP]
time
lead
during
[Demand
inventory]
t
[Sufficien
inventory
sufficient
has
cycle
single
a
y that
Probabilit
0.7
7
.
0
otherwise
1
shortage,
has
cycle
a
if
0
Write
10
1
0
1
0
1
1
1
0
1
1
:
cycles
10
consider
example
For
CSL
CSL
CSL
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79. 79
ROP
Risk of
a stockout
Service level
Probability of
no stockout
Expected
demand Safety
stock
0 z
Quantity
z-scale
ROP = E(DLT) + z σDLT
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The rate of demand
The lead time
Demand and/or lead time variability
Stockout risk (safety stock)
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Orders are placed at fixed time intervals
Order quantity for next interval?
Suppliers might encourage fixed intervals
May require only periodic checks of inventory levels
Items from same supplier may yield savings in:
Ordering
Packing
Shipping costs
May be practical when inventories cannot be closely
monitored
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• A single order must cover the demand until the next order
arrives. Exposure to random demand during not only lead
time but also before.
• Requires higher safety stock than variable order interval
models.
• May provide savings in set up / ordering costs.
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Single period model: model for ordering of
perishables and other items with limited useful lives.
Shortage cost: generally the unrealized profits per
unit, $55 for L.L.Bean. We call this underage.
Excess cost: difference between purchase cost and
salvage value of items left over at the end of a period,
$5 for L.L.Bean. We call this overage.
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Too much inventory
Tends to hide problems
Easier to live with problems than to eliminate them
Costly to maintain
Wise strategy
Reduce lot sizes
Reduce set ups
Reduce safety stock
Aggregate negatively correlated demands
Remember component commonality
Delayed postponement
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The economic production quantity (EPQ) model is used in
manufacturing situations where inventory is replenished at a
finite rate given by the production rate of the item under
consideration.
We define two more variables:
p: Production rate per day (daily production)
d: Demand rate per day (daily demand)
Note: p and d must be defined in the same time unit. For
example these could be weekly instead of daily rates.
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Suppose
p = 50 units/day
d = 10 units/day
EPQ = 500 (production quantity, Q); Note: the optimal value
of Q is EPQ or QP
In this case we will need 10 days to produce 500 units
(EPQ/p = 500/50).
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88. During these ten days, we produce 50 units per day but also
use 10 units per day.
Therefore, we are building up inventory at the rate of 40 (p-d
=50-10) units per day.
At the end of 10 days, the total number of units in inventory
is 400 (40 * 10). This is the maximum inventory level, Imax.
After 50 days, the next batch consisting of EPQ units is
scheduled for production. This is how the cycles continue.
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89. At the end of the 10th day, we stop producing this item and
then continue to meet the demand from the inventory. The
inventory will last for 40 days (400/10) because we have 400
units in stock and the demand rate is 10 units/day.
The production cycle thus consists of 50 days. For the first 10
days we produce and use the item. For the next 40 days, there
is no production and there is only the usage of the item.
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The maximum inventory level as explained
earlier is Imax = Q (1- d/p) = 400.
Average Inventory = (Imax)/2
Annual Setup Cost = (D/Q)S
Annual Holding Cost =
EPQ is obtained by equating the annual setup
cost with annual holding cost and then solving
for Q. The expression for EPQ is given on the
RHS.
p
d
H
DS
EPQ
1
2
p
d
Q
H
H
ax
1
2
2
Im
p
d
Q
H
S
Q
D
TVC 1
2
91. Annual Demand (D) = 50,000 units, Setup Cost (S) =$25.00
per set up, Inventory Holding Cost (H) = $5.00 per unit per
year.
Production rate (p) = 500 units per day.
Number of working days = 250. Demand occurs only during
the working days. Therefore, (d) = 50,000/250 = 200.
EPQ (QP) = 912.87 =
Imax = 548.
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92. 92
Quantity discount model is used when the vendor (supplier)
offers a discount for buying in large quantities.
For example, the supplier may quote a price of $ 10.00 per
unit for order size 1 to 999 and $ 9.50 for order size of 1,000
or more.
This scenario is also called a “price break” at quantity 1,000.
There could be several price breaks.
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93. The annual demand (D) for an item is 240,000 units. The ordering cost per order
(S) is $ 30.00. The inventory carrying cost per unit per year (H) is 30% of the cost
(price) of the item, that is, H = 30% of C.
The vendor has quoted the following costs (prices).
Price 1: $ 2.80 for order quantity less than or equal to 29,999.
Price 2: $ 2.77 for order quantity 30,000 and above.
Find the Economic Order quantity.
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94. To solve this problem we will compare the total costs for both
prices. As in the EOQ model, the economic order quantity is
given by the following equation,
QO =
and, the total cost (TC) is given by the following equation:
TC = (D/Q)*S + (Q/2)*H + D*C
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95. Start calculations by finding EOQ at the lower price ($ 2.77).
The inventory carrying cost for this price is $0.83 (= 30% of $ 2.77) per
unit per year and the economic order quantity for this price is 4,163.
However, we cannot buy 4,163 units at the price of $ 2.77 because the
minimum quantity specified by the vendor at this price is 30,000.
Therefore, we have to buy at least 30,000 units to obtain this price
discount.
We calculate the total cost TC (at 30,000). Using the TC equation,
TC (at 30,000) = (240,000/30,000)*30 + (30,000/2)*0.83 + 240,000*2.77 = $ 677,505.00
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96. Now calculate the EOQ for the higher price $ 2.80.
The value of H for this price is $ 0.84 (30% of $ 2.80).
The economic order quantity is 4,140.
This quantity is feasible because we can by up to 29,999 units at $ 2.80 per
unit.
The total cost, TC(at 4,140) will be:
TC (at 4,140) = = (240,000/4,140)*30 + (4,140/2)*0.84 + 240,000*2.80 = $ 675,477.93.
The order quantity for this example is 4,140
since TC (at 4,140) < TC (at 30,000).
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97. Some materials are more important than others.
Importance can be established in the following two
ways:
o Material Criticality
o Annual Dollar Volume of Materials
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98. There are various definitions of ‘‘critical’’ that fit different
situations. For example, a part is critical when:
o A part failure causes product or process failure.
o Part failure can have a probability (not a certainty) of stopping
the process or product.
o Part failure reduces production output by a significant
amount.
o Danger involved in using materials. Flammability,
explosiveness, and toxicity of fumes are crucial safety factors
for materials management.
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99. Whichever definition of criticality is used, the procedure is to list first the
most critical parts.
Next, systematically rank-order parts according to their relative
criticality.
The concept of criticality should reflect the costs of failures, including
safety dangers, loss of life, and losses in production output.
Curves similar to the figure on
RHS can be created for such
situations.
99
100. ABC categories are based on sorting materials by their annual dollar
volume.
Dollar volume is the surrogate for potential savings that can be made by
improving the inventory management of specific materials.
Accordingly, all parts, components, and other materials used by a
company should be listed and then rank ordered by their annual dollar
volume.
Start with those items that have the highest levels of dollar volume and
rank order them from the highest to the lowest levels.
o The top 25 percent of these materials are called A-type items.
o The next 25 percent are called B-type items.
o The bottom 50 percent are called C-type items.
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101. However, there is no fixed convention that A, B, and C class breaks must
occur at 25 and 50 percent.
Companies differ with respect to what percent of all items stocked
account for 75 percent of their total annual dollar volume.
The figure on RHS portrays a
typical case where 20 to 30 percent
of all items carried account for as
much as 70 to 80 percent of the
company’s total dollar volume.
101
102. Item Stock
Number
Annual Volume
(Units)
Unit Cost Annual Dollar Volume
Percentage of
Annual Dollar
Volume
Cumulative % of
Annual Dollar
Volume
Percentage of
Number of
Items Stocked
Cumulative % of
Number of Items
Stocked
Category
P 1250 $92.00 $115,000.00 40.17% 40.17% 10.00% 10.00% A
Q 530 $168.00 $89,040.00 31.10% 71.26% 10.00% 20.00% A
R 1970 $18.75 $36,937.50 12.90% 84.17% 10.00% 30.00% B
S 430 $42.20 $18,146.00 6.34% 90.50% 10.00% 40.00% B
T 990 $13.80 $13,662.00 4.77% 95.27% 10.00% 50.00% B
U 680 $12.50 $8,500.00 2.97% 98.24% 10.00% 60.00% C
V 2150 $0.98 $2,107.00 0.74% 98.98% 10.00% 70.00% C
W 210 $9.80 $2,058.00 0.72% 99.70% 10.00% 80.00% C
X 1250 $0.52 $650.00 0.23% 99.93% 10.00% 90.00% C
Y 335 $0.64 $214.40 0.07% 100.00% 10.00% 100.00% C
Total $286,314.90
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103. Lead time (LT) is the interval that elapses between the recognition that an
order should be placed and the delivery of that order. See Figure below.
The diminishing stock level reaches a threshold (or limen) called QRP -
the stock level of the reorder point.
The threshold triggers the order for replenishment.
The stock level at the reorder point, RP, is enough to meet orders until the
replenishment supply arrives and is ready to be used.
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104. Eight lead-time (LT) considerations that apply to EOQ or
EPQ or both:
The amount of time required to recognize the need to
reorder.
The interval for doing whatever clerical work is needed to
prepare the order.
Mail, e-mail, EDI, or telephone intervals to communicate
with the supplier (or suppliers) and to place the order(s).
Time that takes the supplier’s organization to react to the
placement of an order?
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105. Delivery time including loading, transit, and unloading.
Processing of delivered items by the receiving department.
Inspection to be sure items match specifications.
Time delays in updating records The effect of such delays on
the production schedule must be considered.
The eight lead-time components are added to get the lead time.
Lead times are usually variable.
Safety stocks may be increased to deal with variable lead times.
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106. Order point policies (OPP) define the stock level at which an
order will be placed. The reorder point (RP), triggers an
order for more stock.
OPP systems specify the number of units to order and when
to order.
We will discuss the following two systems
Periodic, also known as fixed time, inventory systems.
Perpetual, also known as fixed quantity, inventory systems.
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107. The interval between orders is fixed while the ordered amount varies.
The order size is determined by the amount of stock on-hand when the
record is read.
It is the date that triggers the review and the order being placed.
See the figure on RHS.
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108. Perpetual, also known as fixed quantity, inventory systems continuously record
inventory received from suppliers and withdrawn by employees.
An order is placed when reorder point is reached.
The amount ordered is same (generally EOQ or EPQ) in each cycle.
The interval between placing orders is different in each cycle because of demand
variability.
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109. Shortages occur whenever actual demand in the lead-time period exceeds QRP.
The likelihood of a shortage will be decreased by increasing the value of safety(
buffer) stock.
Determining safety (buffer) stock level requires an economic balancing situation
between the cost of going out of stock versus the cost of carrying more
inventory.
The large buffer stock means that the carrying cost of stock is high to make
sure that the actual cost of stock-outages is small.
The stock level of the reorder point (QRP) is equal to the expected (average)
demand during the lead time period plus the safety stock (SS) quantity.
Thus,
109
QRP = LT + SS
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110. The expected demand during lead time is a function of average demand
per day (d) and the magnitude of lead time (LT) and is determined as
It may be noted that calculation of demand during lead time becomes
complex if lead time also varies.
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111. The value of SS depends on the variability of demand and the service level.
The service level is a measure of the stock-out situations allowed. For
example, a 95% service level means that there will be no out-of-stock
situation 95% of the time during lead time.
Assuming that the demand follows a normal distribution the value of SS can
be determined as
SS = zσLT
where, σLT is the standard deviation of demand during lead time and z is a
measure of the service level that we want to provide. z is called standard
normal random variable and can be found from its statistical table. For the
95% service level the value of z = 1.65.
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112. The two-bin system is a smart way of continuously
monitoring the order point.
It is a simple self-operating perpetual inventory system.
See the figure below.
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