Accounting Analysis

Gonzo - and cannonball business

Introduction

The focus of this paper would be on Gonzo - and his cannonball business in which a suggestion would be given to Gonzo concerning the Gonzo'sup front cost, how much he makes per show and profit and loss at the end of the year. Entire calculation will be done on excel sheet along with the explanation.

Discussion

Expenses input in Excel

Expenses for Gonzo has been divided into three categories i.e. fixed cost, variable cost and upfront cost. The following has been input in excel.

Upfront Cost

Upfront costs are also termed as fixed cost since it is a cost that is required in initial start up. This cost comprises of startup cost or any monthly cost incurred for generating revenue. In order words this cost includes initial investments and necessary expenses needed for production.

Variable cost

Variable cost are those cost that fluctuate according to the output of the company such labor cost, material overheads i.e. direct material costs or direct labor costs. This cost depends on production units or volume.

Expenses List

Variable Cost

Gonzo Bath Expense

$75

per show

Cannon shot cost

$100

per show

Repairing cost for Flying Suit

$25

per show

Advertizing Expense

$250

per show

Medics expense

$200

per show

Assistant cost

$400

per show

Total Variable cost

$1,050

Total Up-front cost

Babies expenses

$5,000

Accountants Salaries

$200

Insurance expense

$1,000

Flying suit cost

$200

Assistant costumes cost

$400

Total Up-front cost

$6,800

Per shoot profit

Gonzo is not making any profit on per shoot since fixed costs are much higher.

Income Statement

Revenue

$1,500

Variable cost

$1,050

Cost of Goods Sold

$450

Fixed Expenses

$6,800

Net income

($6,350)

Break Even Analysis

Breakeven analysis is a tool used for determining a point where sales exactly cover-up its expenses. At this point company does not earn any profit or loss (Motilal Banarsidass, 2012).

In case of Gonzo, they need to perform at least 15 shows in order to cover up their expenses. The following is the calculation that has also been performed in excel.

Formula for Breakeven: Fixed Cost / (selling price - Variable Cost)

Break even Analysis

Fixed cost

$6,800

Variable Cost

$1,050

Selling cost

$1,500

Break-Even

15 units

If Gonzo wants to make the $3,000 he needs for this grand vacation, then he would need 22 shows.

Formula Breakeven: (Fixed Cost + Desired Profit) / (selling price - Variable Cost)

Break even Analysis

Fixed cost

$6,800

Desired Profit

$3,000

Variable Cost

$1,050

Selling cost

$1,500

Break-Even

22 units

Summary

1. What coin do I need up front in order to launch my human cannonball enterprise?

Gonzo needs $6,800 ...