The document provides an analysis of costs for a catering and events business. It finds the business has a break-even point of 3,158 events based on revenue of $4,500 per event and variable costs of $2,600 per event. It also calculates the business would need 5,789 events to increase profits from $3.5 million to $5 million. The analysis is limited as it makes estimates and assumptions about demand that may not reflect reality. Key data like taxes and certain fixed costs are also missing.

1. Cost Analysis Models
Unit 3: Written Assignment
BUS 5110
Managerial Accounting
Unit 3
Introduction
Cost management is important for all businesses and is used to
plan and control the budget. This is done by analysing business
practices, predicting expenditures in advance and reducing the
chance of over spending in relation to income. Using the client
provided data for a business involved in the catering and events
industry we can evaluate how productive and effective her
business is.
Provide an accurate solution.
We can see from the data in the attached costing sheet that the

2. company has a break even point of 3158 events. To come to this
conclusion, we calculated the revenue per event (Current
revenue / number of events) $22,500,000 / 5000 = $4,500. We
also require our Contribution margin (Revenue per event -
Variable cost per event) $4,500 - $2,600 = $1,900. To calculate
the Breakeven point, we simply take the Fixed cost and divide
that by the Contribution margin = 6,000,000 / 1,900 = 3157.89
Hypothetically, if the company decided they’d like to improve
their revenue and increase their profits from $3,500,000 to
$5,000,000 we can use the data to calculate the number of
events required to reach that target. Using the Units to Achieve
a Target Income formula (Total fixed costs + Target income) /
Contribution margin per unit = (6,000,000 + 5,000,000) / 1,900
= 5789.47 = 5789 events (Walther, L. M. & Skousen, C.J.,
2009).
Provide a narrative that defines and discusses the purpose of
assigning cost categories of fixed and variable costs.
Operating a business incurs a range of costs. These can be
defined as either fixed costs which don’t change in relation to
activity and variable costs which do. These costing structures
will likely differ between businesses and industries. Companies
have even been known to use different costing structures
between different internal departments. (CFI., n.d.)
Many fixed costs are going to be unavoidable and come from
the simple operational side of your business. Costs such as
depreciation, taxes and rent will likely remain unchanged
however other fixed costs such as advertising budgets are more
discretionary. Variable costs are also able to be altered
depending on the size and scale of your business. For example,
order quantities can be increased to bring unit costs down
however before committing to such decisions forecasting your
sales based on this should also be carried out to ensure you
don’t end up grossly overstocked (Walther, L. M. & Skousen,
C.J., 2009).
In order to maximise profits companies are required to minimise

3. or eradicate unnecessary costs any way they can, ideally with no
impact on the quality of the final product. A manager must
understand both of these categories and the importance they
play in the overall running of the business if they’re ever going
to effectively improve the business model, reduce costs and
remain profitable.
Provide a narrative that defines and discusses the relationship
of variable costs to contribution margin.
Contribution margin is calculated by sales revenues minus
variable costs and represents the profit generated for each
product or unit sold. This can be measured as a percentage or as
a dollar figure. One of the most important factors of
contribution margin is that it remains fixed on a per unit basis
irrespective of the number of units manufactured or sold.
(Investopedia Staff., 2019, February 12)
Because only variable costs change based on units of
production, fixed costs have no direct impact on contribution
margin. Items such as components and materials used for
production can be purchased in larger quantities in order to
reduce base unit costs and increase the final number of units
produced. As these variable costs go down your contribution
margin on your final product will increase. (Walther, L. M. &
Skousen, C.J., 2009).
Provide a narrative that discusses the limitations of the data.
As helpful as CVP is to calculate the profitability of a company
based on fixed and variable costs, it does have its limitations.
Due to the number of data estimations required to calculate, it
can lack accuracy and should be considered an approximation
instead of a guarantee. For example, CVP assumes that both
total costs and total sales are linear however we know that
scales of economy can impact costs and large purchases can
often lead to a decrease in cost per unit which wouldn’t be
represented in this analysis. Another assumption made which
can change dramatically depending on external factors is the

4. demand for the provided service. Demand can be forecast to
some extent however this yet again add another estimation to
the analysis which can easily change. (Agarwal, R., 2015, May
13)
Provide a narrative that speculates what data is missing from
the case.
Several other fixed costs pertaining to any business is missing
from the provided date. Tax payments are a significant
component of fixed costs which should be considered. If taxes
aren’t added to the calculation we can only assume the fixed
price would rise and our analysis would have to be re-done in
order for it to be more accurate.
The client data suggests that the tents and other structures as
well as trucks and vehicles are only “allocated costs” and not
actual costs. Even though these are considered fixed costs,
circumstances can change, and these allocated costs may
increase or decrease dramatically. For example, a rise in fuel
costs will increase the allocated costs of trucks and vehicles.
Other missing variables specific to this example include fixed
costs office rent and storage costs as well as the variable cost of
utilities. All of which should be recorded and added to your
costing plan. Without these added into your CVP it will give an
inaccurate representation of your breakeven point and you could
end up losing money.
References:
Agarwal, R. (2015, May 13). Cost-Volume Profit (CVP):
Definition and Limitations. Retrieved from
http://www.yourarticlelibrary.com/accounting/costing/cost-
volume-profit-cvp-definition-and-limitations/52670
CFI. (n.d.). Cost Structure - Learn About Cost Allocation, Fixed
& Variable Costs. Retrieved from
https://corporatefinanceinstitute.com/resources/knowledge/finan
ce/cost-structure/
Investopedia Staff. (2019, February 12). Contribution Margin.

5. Retrieved from
https://www.investopedia.com/terms/c/contributionmargin.asp
Walther, L. M. & Skousen, C.J. (2009). Managerial and Cost
Accounting. Bookboon.com
ECO 201 Milestone Three Guidelines and Rubric
The purpose of this milestone is for students to explore the
various costs their firm faces and to describe their firm’s
market. Using the concepts and tools
developed in Modules Four and Five, students will analyze the
fixed and variable costs of their firm, how those costs have
changed over time, and how those
changes have impacted their firm’s overall health and
sustainability. In analyzing their firm’s market, students will
detail the extent of their firm’s market power
and their firm’s ability to influence the market. Students will
also describe major trends in the market, specifically
concerning new products, technologies, and
new entrants. Students can further determine the future health
of their firm to inform their final recommendations by
examining their firm’s place within the
market.
Prompt: Submit a draft of the Costs of Production (Section IV),
Overall Market (Section V), and Recommendation (Section VI)
of your research paper, including
all critical elements listed below. You will review your firm’s
financial reports and other relevant data sources to collect and
analyze cost information for your firm
over the past five or so years. Using real data and the economic
tools developed in Module Four, you will analyze your firm’s

6. profitability and how costs impact its
growth. Additionally, you will find data on your firm’s
competitors in order to detail your firm’s place within the
market currently and over the past five or so
years. Lastly, you will develop a recommendation for how the
firm can manage its future production.
Specifically the following critical elements must be addressed:
IV. Examine the costs of production for your firm.
a) Analyze the various costs a firm faces, their trends over time,
and how they have impacted your firm’s profitability.
b) Apply the concepts of variable and fixed costs to your firm
for informing its output decisions. For instance, analyze how
different kinds of costs
(labor, research and development, raw materials) affect the
firm’s level of output.
V. Explore the overall market for your firm.
a) Discuss the market share of the firm and its top competitors
by providing details on current percentages for each firm and
describing the trend
over time. You might consider presenting the data graphically.
b) Analyze the barriers to entry in this market to illustrate the
potential for new competition and its impact on your firm’s
future in the market.
c) Describe the market structure for this firm and analyze how
this affects the firm’s ability to influence the market.
VI. Recommendation

7. a) Develop a recommendation for how the firm can manage its
future production by synthesizing the data presented.
b) Suggest how the firm’s position within the market and among
its competitors will allow it to take your recommended action.
c) Describe how the firm can sustain its success going forward
by evaluating the findings from demand trends and price
elasticity.
Rubric
Guidelines for Submission: Your paper must be submitted as a
three- to six-page Microsoft Word document (each section
should be one to two pages) with
double spacing, 12-point Times New Roman font, one-inch
margins, and sources cited in APA format.
Critical Elements Proficient (100%) Needs Improvement (75%)
Not Evident (0%) Value
Costs of Production:
Profitability
Analyzes the various costs a firm
faces, their trends over time, and how
they have impacted the firm’s
profitability
Analyzes the various costs a firm
faces, and their trends over time, but
does not discuss how they have
impacted the firm’s profitability

8. Does not analyze the various costs a
firm faces, their trends over time, or
how they have impacted the firm’s
profitability
12
Costs of Production:
Output Decisions
Accurately applies the concepts of
variable and fixed costs to the firm for
informing its output decisions
Applies the concepts of variable and
fixed costs to the firm for informing
its output decisions, but applies
concepts inaccurately
Does not apply the concepts of
variable and fixed costs to the firm for
informing its output decisions
12
Overall Market: Market
Share
Discusses the market share of the
firm and its top competitors by
providing details on current
percentages for each firm and
describing the trend over time

9. Discusses the market share of the
firm and its top competitors, but does
not provide details on current
percentages for each firm or does not
describe the trend over time
Does not discuss the market share of
the firm and its top competitors
12
Overall Market: Barriers
to Entry
Analyzes the barriers to entry in this
market to illustrate the potential for
new competition and its impact on
the firm’s future in the market
Analyzes the barriers to entry in this
market, but does not illustrate the
potential for new competition or its
impact on the firm’s future in the
market
Does not analyze the barriers to entry
in this market
12
Overall Market: Market
Structure

10. Describes the market structure for
this firm and accurately analyzes how
this affects the firm’s ability to
influence the market
Describes the market structure for
this firm, but does not analyze how
this affects the firm’s ability to
influence the market or analysis is
inaccurate
Does not describe the market
structure for this firm
12
Recommendation: Future
Production
Effectively develops a
recommendation for how the firm
can manage its future production by
synthesizing the data presented
Develops a recommendation for how
the firm can manage its future
production, but recommendation is
not effective or is not based on a
synthesis of the data presented
Does not develop a recommendation 12
Recommendation:
Recommended Action
Suggests how the firm’s position

11. within the market and among its
competitors will allow it to take the
recommended action
Suggests how the firm’s position
within the market and among its
competitors will allow it to take the
recommended action, but
suggestions are not appropriate
Does not suggest how the firm’s
position within the market and
among its competitors will allow it to
take the recommended action
12
Recommendation:
Sustain its Success
Describes how the firm can sustain its
success going forward by evaluating
the findings from demand trends and
price elasticity
Describes how the firm can sustain its
success going forward, but does not
evaluate the findings from demand
trends and price elasticity in the
discussion
Does not describe how the firm can
sustain its success going forward

12. 12
Articulation of Response Submission has no major errors
related to citations, grammar,
spelling, syntax, or organization
Submission has major errors related
to citations, grammar, spelling,
syntax, or organization that negatively
impact readability and articulation of
main ideas
Submission has critical errors related
to citations, grammar, spelling,
syntax, or organization that prevent
understanding of ideas
4
Earned Total 100%