3 accounting questions

The data for this analysis has been taken from Proctor & Gamble’s 2012 annual reports, which show that the company made an operating profit of $13292 million. The contribution margin for the company has been found to be 49 percent and this information will help the company in achieving next year’s target sales of $97953 million with a growth rate of 17 percent (Yahoo Finance, 2013). By using the same information, the breakeven point can be found as specified in the case study. If the company has enough resources to produce enough products so as not to lower the overall contribution margin then all the products must be produced. If it is found that the company has lower resources for even one product, then that product must be dropped so as not to lower the contribution level for all the products. In the analysis of the tables given in the case study we see that if any product has low contribution level then it must be dropped to keep the high contribution level of all the products of the company intact. The term of contribution margin is very important to decipher the breakeven point and take important decisions of the firm whether to produce certain goods or to drop it (Contribution Margin, (n.d)). 

Figures in millions of $	2012
Sales	83680
Cost of goods sold	42391
Contribution Margin	41289
Less operating expenses	27997
Operating profit	13292

 

References

Contribution Margin (n.d).  Retrieved on November 16, 2013, from http://www.investopedia.com/terms/c/contributionmargin.asp

Yahoo Finance (2013).  P&G Income Statement. Retrieved on November 16, 2013, from http://finance.yahoo.com

2 Question’s

1)

For companies like this, there is a huge amount of fixed assets to maintain and depreciate.  How does that fact impact the breakeven?

2)

What constitutes important to keep/or drop a product?