M4 SLP – Break-Even Analysis and Planning Instructions

Budgeting is an important internal activity. Preparing budgets involve forecasting sales and estimating costs. For this paper, you will prepare a flexible budget for next year for the Coca Cola Company. The budget needs to be realistic and based on corporate and economic trends.

Set up the flexible budget at three levels for the income statement.

Information to consider in determining the three levels.

  • Q:  What is the growth rate in sales for the past three years?
  • Q:  What is the current growth rate in the economy?
  • Q:  How are the competitors doing?
  • Q:  Current interest rates and tax burdens.

Discuss the implications of the information after you have completed the flexible budget.

  • Q:  What did you learn ; and
  • Q:  How can you use this information as a manger?

Paper Expectations:

  • Always include the name or the organization(s), time period covered and source of information.
  • Complete all computations.
  • Answer all the questions (Q) as posed.
  • Paper should be 2 pages and written in a clear and concise manner.
  • Support your discussion with references in APA format.
  • Must use headings throughout the paper (introduction, body headings, and conclusion).
  • All references must be cited in accordance with APA guidance.
  • Please use Excel or other compatible spreadsheet when computations are involved and paste into the paper.

Background information

Cost-Volume-Profit Analysis

Profit equation:

Profit = SP (x) – VC (x) – FC

Where:        SP = unit sales price

VC = unit variable cost

FC = fixed cost

x    = No. of units produced and sold

Break–even point (BEP)

BEP is the point where total sales equals total costs.

Using the profit equation to calculate BEP:

0 = SP (x) – VC (x) – FC


Margin of Safety

The difference between actual or budgeted sales and BEP sales.

Contribution Margin (CM)

The difference between sales (in total or per unit) and variable costs (in total or per unit).

No. of units = Before Tax Profit

Unit CM

BEP in units =      FC         

Unit CM

Contribution margin ratio (CMR)

The ratio of contribution margin (in total or per unit) and sales (in total or per unit).

Sales dollars = Before Tax Profit + FC


BEP in dollars =     FC


Required Background Materials:

Tsorakidis, N. (2009). Break-Even Analysis. Retrieved November 15, 2011 from http://bookboon.com/en/business/finance/break-even-analysis-1

Walther, l. (2010). Chapter Eighteen. Cost-Volume-Profit and Business Scalability. Retrieved November 15. 2011 from  http://www.principlesofaccounting.com/

Optional Resources:

n.a. (2010, September 20). Breakeven Analysis – Starting a Coffee Shop –  [Video file] Retrieved November 15, 2011 from http://www.youtube.com/watch?v=i7uhmGVsbUg

Martin, J.R. (n.d.) Management Accounting: Concepts, Techniques, and Controversial Issues – Chapter 9: Introduction. Management And Accounting Web Home Page. Retrieved November 15, 2011 from http://maaw.info/Chapter9.htm



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