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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.

The mechanics of preparing projected financial statements are described to provide an understanding of the methods used in preparation, and to outline how these projections can be modified and used in financial planning and management decision making.

Mr. Stuart Foreman, assistant manager of the London, Ontario branch of the Central Canadian Bank, was reviewing information he had received from Maple Leaf Hardware Limited. Mr. Robert Patrick, president and manager of Maple Leaf Hardware Limited had requested an increase in his line of credit with the bank to cover seasonal working capital needs. Mr. Foreman, who had just received a transfer and promotion to the London branch, realized he would have to evaluate the request carefully.

Mr. Stuart Foreman, assistant manager of the London, Ontario branch of the Central Canadian Bank, was reviewing information he had received from Maple Leaf Hardware Limited. Mr. Robert Patrick, president and manager of Maple Leaf Hardware Limited had requested an increase in his line of credit with the bank to cover seasonal working capital needs. Mr. Foreman, who had just received a transfer and promotion to the London branch, realized he would have to evaluate the request carefully.

An entrepreneur was investigating the feasibility of opening an Italian fast food franchise called Rosa's Palas. He spoke to the franchisor concerning a few franchise break-even points, and his return on investment for his restaurant. With this information, the entrepreneur felt he could decide whether he would invest in the franchise.

An entrepreneur was investigating the feasibility of opening an Italian fast food franchise called Rosa's Palas. He spoke to the franchisor concerning a few franchise break-even points, and his return on investment for his restaurant. With this information, the entrepreneur felt he could decide whether he would invest in the franchise.

Based on a preliminary analysis, the inventor of a licence plate protector believes the product would be viable. He collects information on the investments and costs necessary for production, and develops a selling price. But has he correctly identified the fixed, variable and step costs in his analysis?