Fairmont Limited is a company involved in real estate development in western Canada. Fairmont (B) deals with complex stock transactions and follows the Fairmont (A) case 9A84K022.
Crossroads Tavern is a short two part exercise on break-even analysis. In the first part, the owner and manager are attempting to assess the level of sales (measured in units and dollars) required for the firm to: (a) achieve a profit of zero; (b) achieve a target profit of $30,000; and (c) achieve a net cash flow of zero. In the second part, the manager is evaluating the idea of expanding the hours of operation, and is attempting to determine the sales volume necessary to make such an expansion feasible.
Disc Importers is a classical record importer and wholesaler which has just completed its first year of operations. The controller has asked other executives for assistance in choosing an inventory valuation method. The choices revolve around the four standard inventory valuation options (LIFO/FIFO/average cost/specific identification), and the uses which the executives wish to make of the financial statement information. As well, the controller wants to evaluate the impact of the lower-of-cost-or-market rule on ending inventory evaluation. There has been substantial increases in the unit cost of discs throughout the year, and hence the inventory valuation method chosen will impact the financial statements.
This note discusses cost behaviour, break-even analysis contribution and projected income statements. In addition to the theoretical framework, two examples are presented and analyzed.