ACC403 - Principles of Accounting (SLP) A Revised Income Statement, The Contribution Margin - Essay Example

Running Heading: Principles of Accounting Principles of Accounting Introduction This report covers the break even analysis of Dole Food Company which is an American based Multinational enterprise operating in almost 90 countries (Dole food, Inc, 2010) . Dole Food Company is world’s largest producer of fruits and vegetables offering more than 300 products to the customers around the world. The major segments of the Dole Food Company are fresh fruits, vegetables and packaged fruit. Break even is the point where the revenues of the company are equal to the cost and expenses and the profitability of the company is equal to zero.

In this report, break even analysis along with the variable and fixed cost and expenses of one of the activities in the fresh fruits segment of Dole Food Company have been examined for the year 2010. Production and selling of bananas are one of the major sources that earn revenue in the fresh fruits segment. Fresh fruit segment is one of the major segments as it earns 68% of the total revenue of the company and 40% of the total sales of fresh fruit segment consists of bananas (Dole Food Company, 2010).

Breakeven Analysis Break even analysis is the point where the cost and revenues of the company are equal and therefore the profit of the company is zero. The following table reflects the income statement of Dole Food Company in a summarized form for the year 2010 along with their percentage to total revenues: Amount in thousands Percentage to revenues Revenues 1,183,877 100% Cost of Goods Sold 759,480 64.2% Gross margin 424,397 35.8% Expenses 389,302 32.9% Operating margin 35,095 3.0% Interest & taxes 15,651 1.

3% Net income 19,444 1.6% (Source: Dole Food Company, 2010) The above table indicates that the gross profit margin of the company is 35.8% with an operating profit income of 3.0%. As the total revenue of fresh fruits is 68% of the total revenue of the company therefore total sales or revenues of this segment would be $805 million (Dole Food Company, 2010. Assuming the overall expenses and cost would remain the same for fresh fruit segment, the profit and loss statement of Dole Food Company has been represented in the following table: Revenues $ 805,036 Cost of Goods Sold $ 516,446 Gross margin $ 288,590 Expenses $ 264,725 Operating margin $ 23,865 Interest & taxes $ 10,643 Net income $ 13,222 As bananas are the major revenue generating product in the fresh fruit categories and they generate almost 40% of the total sales of fresh fruits therefore the profit and loss statement from one activity i.e. production of bananas is as follows; Revenues $ 322,015 Cost of Goods Sold $ 206,579 Gross margin $ 115,436 Expenses $ 105,890 Operating margin $ 9,546 Interest & taxes $ 4,257 Net income $ 5,289 A unit of measurement for the activity In order to measure the activity, the number of units sold by the company has been used.

The total boxes of bananas sold by Dole Food Company are 153 million and this figure has been used to measure the activity. Revenue per unit for the activity There are 153 million boxes of bananas sold in the year 2010 and therefore the revenue per unit for the activity is as follows: Total Revenue $ 322,015,000 Total units sold 153,000,000 Revenue per unit $ 2.1 Variable costs for the activity The percentage of variable cost for bananas is calculated using the same rate as the total sales and total cost of goods sold of the company.

The percentage of total cost of goods sold of Dole Food Company as calculated using the financial statement is 64.2% and therefore the variable cost of bananas would be $1.35. Fixed costs for the period in the activity The total expenses and cost of the company are assumed to be fixed costs for the period of 2010. Therefore the total fixed cost for production of bananas is $105,890,000. Break Even Analysis Break even analysis for production of banana is calculated below: Revenue per unit $2.

1 Variable cost $.135 Fixed Costs $105,890,000 Break even (sales) $140,348,000 Break even in units 66,684,009 Therefore Dole Food Company has to produce 66,684,009 boxes of bananas in order to achieve break even or the company has to earn total revenues of $140,348,000 to achieve break even. Conclusion Break even analysis is an important tool for investors as well as management as using this technique the management analyzes the amount of units or sales the company should generate in order to cover up the total fixed costs.

Break even sales of Dole Food Company is $140 million therefore the company has to achieve this amount of revenues to achieve break even and revenues greater than this amount would result in profitability. Bibliography Atkinson, A., Kaplan, R., Matsumura, E., & Young, M. (2007). Management Accounting. New Jersey: Pearson Prentice Hall. Dole Food Company (2010). Form 10-K. United States Securities And Exchange Commission. Retrieved February 14, 2012 from http://phx.corporate-ir.net/External.File?

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