Join Jim Stice for an in-depth discussion in this video Calculate McDonald's target profit, part of Breakeven and Cost-Volume-Profit (CVP) Analysis.
- We are going to go back to Mcdonald's…and we are going to, using our knowledge of CVP analysis,…see why they and their competitors…are doing what they are doing in the fast food space.…Now, I have studied Mcdonald's financial statements…quite a bit and so we are going to lean on…what I have gleaned from those financial statements…to do the analysis that follows.…In our prior analysis, we'd looked at the various…product offerings to see why Mcdonald's pushes…fries and drinks when they're trying to upsize a meal.…In this analysis, we are going to see why they…and their competitors have moved into the breakfast space…as well as why they tend to be expanding…their late night hours.…
To start with, we're going to assume annual fixed costs…for a Mcdonald's store of around a million dollars.…And again, that's not far from the truth.…We will assume that the average sales price…per customer is six dollars and we will also assume…that Mcdonald's contribution margin for each sale is 55%.…That is, for each sale of six dollars,…
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- Breaking down fixed and variable costs
- Pricing a service to cover costs
- Identifying high contribution margins
- Calculating a company's breakeven point
- Conducting breakeven analysis with breakeven equations
- Computing target net income
- Exploring sensitivity analysis