FACULTY OF ENGINEERING
Department of Civil Engineering
Master of Structural Engineering and Construction
CONSTRUCTION BUSINESS MANAGEMENT(ECV 5703)
Prepared By: MAGED MOHAMMED AHMMED GS38690 Prepared For: PROF. MADYA .IR. SALIHUDIN BIN HJ HASSIN
Chapter 10: Setting Profit Margins for BiddingAssignment Number (5)
Submission Date: 19 April 2016
Faculty of Engineering
Department of Civil Engineering
Master of Structural Engineering and Construction
Construction Business Management(ECV5703) Page 1
Problem 10: Determine the break-even volume of work for a company with a fixed overhead of $72,000 and a contribution margin ratio of 14.0%.
Using following equation and setting the profit to zero
overheadFixed-(Revenues)Ration CMProfit
286,514$
0.14$72,000CMoverheadFixedRevenuesoverheadFixed-(Revenues)Ration CM0 overheadFixed-(Revenues)Ration CMProfit
The company in given problem need to generate $ 514,286 in revenues to cover its fixed overhead. If it generates less than $ $ 514,286 the company will not cover the fixed overhead and will lose money on construction operations. For the revenues in excess of $ 514,286 the entire contribution margin will be profit from operations Problem 12: Determine the break-even volume of work for a company with a fixed overhead of $63,000, a contribution margin ratio of 11.0%, and a required level of profit of $60,000. Using following equation and setting the profit to $60,000
overheadFixed-(Revenues)Ration CMProfit
,118,1821$0.11$63,000$60,000CMoverheadFixedProfitRevenuesoverheadFixed-(Revenues)Ration CMProfit
The company in Problem 12 will need to generate $1,118,182 in revenues to cover its fixed overhead and make $60,000 in profit. If it generates less than $1,118,182 it will not meet its profit requirements. If the company generates more than $1,118,182 it will exceed its profit requirements.
Faculty of Engineering
Department of Civil Engineering
Master of Structural Engineering and Construction
Construction Business Management(ECV5703) Page 2
Problem 14 A construction company has a fixed overhead of $ 60,000 and a variable overhead of 2.5 % of revenue. Historically, construction costs have been 88 % of revenue what is the maximum amount of sales that are required to break -even. By using the following equation to determine contribution margin ratio:
RevenuesOverheadVariableRevenuesonConstructi-1RatioCM
%9.5 095.0025.00.88-1RatioCM
By using equation and setting the profit equal to zero. We get the following:
overheadFixed-(Revenues)Ration CMProfit
31,5796$0.095$60,000CMoverheadFixedRevenuesoverheadFixed-(Revenues)Ration CM0 overheadFixed-(Revenues)Ration CMProfit
Problem 18:- Determine the break
–
even contribution margin ratio for accompany with a fixed overhead of $ 92,000 revenues of $ 450,000, and a required level of profit of $ 45,000. By using following equation and setting the profit equal to $ 45,000. We get the following:
overheadFixed-(Revenues)Ration CMProfit
%30.4or 304.0
450,000$$92,000$45,000RevenuesoverheadFixedProfitRatioCMoverheadFixed-(Revenues) RatioCMProfit
The company described in problem 18 will need to maintain a contribution margin ratio of 30.4% in order to meet profit requirements. If the contribution margin ratio is less than 30.4% the company will not meet its profit requirement. If the contribution margin ratio is greater than 30.4% the company will exceed its profit requirement.
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