Independent Critical Evaluation of aFinancial Planning Model

Course: BA(Hons) Business Management 3+0
Subject: Financial Modelling
This report will using the cost-volume-profit analysis study method Ma Ao Center School between the number of student, tuition, school cost and profit relationship.

Introduction of Ma Ao Center School
Overview
Ma Ao Center School is located in the scenic, cultural landscape thick of the "Thousand Islands Heritage village" Zhoushan area in the southern town of Ma Ao, China. 于1997年9月合并了馬岙中學、馬岙中心小學兩所學校，是定海區(qū)第一所九年一貫制學校。In the September 1997 school merger Ma Ao, Ma Ao Central Primary School are two schools is the first Haiding nine-year school. 目前，學校占地面積26000平方米，22個教學班，在校學生689名，教職員工75名，男26名，女49名，35周歲以下56名，占74.7%。 Currently, the school covers an area of 26,000 square meters, 22 classes, 689 students in the school, faculty and staff of 75, male 26, female 49, 35 under the age of 56, accounting for 74.7%. 其中，中學教師27名，小學教師48名（包括內(nèi)退教師4名），臨時用工3名（1名外聘體育代課教師、1名食堂職工、1名司機）There into, 27 secondary school teachers, 48 primary school teachers, the temporary employment 3 (1 external sports substitute teachers, a cafeteria workers, a driver). 在師資結(jié)構(gòu)中，中學一級、小學高級教師30名，占40%；專任教師56名，占74.7%，后勤崗位14名，占18.6%；學歷層次中，擁有大學本科學歷13名，全部為中學教師，占中學教師的48.1%，大學專科45名，占60%；在教師隊伍中，達到規(guī)定學歷的中學25人，占92.6%，小學46人，占95.8%，專任教師全部達到國家規(guī)定學歷（未達到規(guī)定學歷的為內(nèi)退教師、教輔崗教師）。 Teacher structure the secondary level, primary school teachers in 30 high-level, 40%; full-time faculty of 56, accounting for 74.7%, 14 logistics jobs, accounting for 18.6%; academic levels in 13 with a university degree, all of secondary school teachers, accounting for 48.1% of secondary school teachers, 45 junior college, 60%; in the ranks of teachers, 25 secondary schools achieve the required qualifications, accounting for 92.6%, 46 primary schools, accounting for 95.8%, full-time teachers all meet the national requirements education (does not meet the qualification requirements for early retirement of teachers and supplementary teachers in post.) 1906年在原址辦學至今，已經(jīng)擁有近百年的辦學史。 Running at the site since 1906, already has nearly a hundred years the school history. 特別是90年代以來，學校在上級有關(guān)部門的關(guān)心支持下，加大了教育的投入，使學校面貌日新月異，基礎設施、教育教學設備不斷更新，現(xiàn)代化的三大校園網(wǎng)絡、多媒體教室、電腦房、語音室、閱覽室、圖書室等齊全。 Especially since the 90s, the school authorities at a higher level of care and support, increased investment in education, so that the face of changing schools, infrastructure, education and teaching equipment, constantly updated, modern three campus network, multimedia classrooms, computer room, language lab, reading room, library and so complete. (Mazxtjf, 2005) http://www.mazx.net/show.aspx?id=11&cid=6#p#分頁標題#e#
財務會計essay-獨立財務規(guī)劃評價模型-Independent Critical Evaluation of a Finan1.2 The goal of Ma Ao Center School
Limited resources to upgrade facilities to improve the learning environment.
Replacement to serve the will of the leadership to stimulate students to learn.
Promote the quality of teaching in comprehensive quality control efficiency.
Teaching caring perfusion to enrich the cultural literacy.

2.0 Cost-volume-profit Relationships
Decision making and planning by management do not involve only the determination of relevant cost behavior; we have assumed that a major objective of managers is the generation of cash. Planning and decision making involve a consideration of the combined effect on both cost and revenue functions of changes in the level of activity. The usually termed ‘cost-volume-profit’ (CVP) analysis, although the term ‘cost-volume-surplus cash flow’ would be a more appropriate.
Cost-volume-profit analysis is based on the following relationship:
Profit = Revenues – Total Costs
If we use the term to denote profit for the period, P to denote the selling price per unit, x to denote the level of output produced and sold during the period, a to denote the level of fixed costs for the period, and b to denote the variable cost per unit produced and sold, we can then derive the expanded CVP equation as follows:

CVP analysis thus assumes that the firm’s total costs can be separated into their fixed and variable components. It is seldom immediately obvious which costs are fixed and which are variable, and quite sophisticated statistical techniques may be necessary in order to segregate costs into appropriate categories for decision making purposes.

Using the data for Ma Ao center school given in table 2.0, we can see how the cost-volume-profit equation might be used to answer certain questions relevant to managerial decision making, such as:
What is enrolled in number of student at which Ma Ao center school breaks even (i.e. makes neither a profit nor a loss)?
How many number of student must enrolled to show a profit of RMB 10,000 ?
What school fees will be charged RMB 5000, showing a profit of 689 students?

Table 2.0 Ma Ao center school. Date for cost-volume-profit
__________________________________________________________
School fees RMB 1,800 number of student
Fixed costs per annum RMB 226,900
Semi -variable costs
Fixed element RMB 116,450
Variable element RMB 400 number of student
Variable costs RMB 800 number of student
Relevant range of students RMB 500 – 800 number of student
_________________________________________________________

Break-even point in number of student

Then Ma Ao center school breaks even at the number of student of enrolling (x) where:
a + bx = Px
Substituting in the above we have:
343,350 + 1200x = 1800x
x =572 students

Number of student to be enrolling to show a profit of RMB 10,000?#p#分頁標題#e#
財務會計essay-獨立財務規(guī)劃評價模型-Independent Critical Evaluation of a FinanSubstituting in the CVP equation we have:
10,000 = 1800x – (343,350 + 1200x)
600x = 353,350
x =589 students

School fees will be charged RMB 5000, showing a profit of 689 students
Substituting in the CVP equation we have:
500 = P (116,450) – (343,350 + 1,200116,450)
500 = 116,450 P – 140,083,850
116,450 P = 140,084,350
P = RMB 1202.56 (i.e. an increase of RMB 2.56 number of student)

The above equations are one means of presenting CVP information. An alternative form of presentation, which may serve to clarify the underlying cost and revenue relationships assumed, is the use of graphs. Two graphs in particular are used to portray CVP relationships, the break-even chart and the profit-volume chart.

The Break-even Chart
The break-even chart. The initial purpose of the chart may have been simply to inform management of the level of output at which total revenue just covers total cost. Nowadays, in conjunction with the relevant range notion, the chart may be intended to give an estimate of profit at different output levels (i.e. income statements).
Using the data for Ma Ao center school taken from Table2.0, we can construct a break-even chart by summing geometrically the various cost categories. The chart is shown in Fig.3.0. There is no ‘best’ order of aggregating vertically the costs. However, it is most usual to begin with fixed costs, then to add the semi-variable costs and finally to add the variable costs. The two most important linear functions in Fig.3.0 are the total revenue function and the total cost function.

Fig. 3.0 Break-even chart

The point (X) at which the total revenue (TR) line cuts the total cost (TC) line is the point where Ma Ao center school makes neither a profit nor a loss. This is the break-even point which lends its name to the chart. Visual inspection of the graph shows the break-even point to be 572 students; the amount arrived at by application of the basic CVP equation.
This break-even output information may be useful to the center school in assessing the probability of making a profit in the coming year. After calculating the break-even point, managers may assess how likely it is that at least 572 students will be in the center school. It will be less useful in guiding the center school to an optimal output decision (How many enroll of student level will produce the highest profit?). Within the limits imposed by the relevant range, it is apparent from the chart that the maximum output (800 students) will produce the highest profit. It also seems that, without the upper limit imposed by the relevant range, any increase in output above 800 students will increase profit. In theory, the optimal level is infinity. This conclusion follows from the assumed linearity of the cost and revenue functions, and is one of the weaknesses of the method.

Break-even Analysis and the Contribution Margin
We can see from the break-even chart in Fig.3.0 that at enroll levels below 572 students, Ma Ao center school makes a loss equal to the distance between the total cost line and the school fees revenue line; above 572 students, Ma Ao center school makes a profit equal to the distance between the school fees revenue line and the total cost line.#p#分頁標題#e#
http://www.400190.com/Thesis_Writing/Accounting_Assignment/2011/1101/955.htmlSuppose now that Ma Ao center school enrolls only 571students, a number of students below the break-even point. What will be the amount of the loss? Recall that the cost-volume-profit equation is:


-750 (i.e. a loss of RMB750)

Now suppose that Ma Ao center school enrolls 573 students, number of students above the break-even point. What will now be the profit for the year?
Substituting in the basic CVP equation we have:

450 (i.e. a profit of RMB450)

What is the significance of these figures of RMB 750 loss and RMB 450 profit respectively? Is it a coincidence that the answer is RMB 750 in each case? The significance lies in the fact that each additional number of student produces and enroll is generating an incremental profit of RMB 750, as represented by the difference between the enrolling school fees number of student of RMB 1800 and the variable cost number of student of RMB 1200. This incremental profit is known as the contribution margin or contribution on each number of students enrolled.

Conclusion
This evaluation helps determine when techniques such as CVP analysis are likely to be an appropriate tool and how much reliance to place on the results. The quality of information generated from an analysis technique is higher if the economic setting is consistent with the technique’s underlying assumptions. Nevertheless, in many business settings CVP analysis provides useful information. Accountants and managers use their knowledge of the organization’s operations and their judgment to evaluate whether the CVP assumptions are reasonable for their setting. They can rely more on CVP results when the assumptions are less likely to be violated. Also, the data used in CVP calculations must be updated continually to be useful. (The Wall Street Journal Reports 2005)
Ma Ao center school using Cost-Volume-Profit Analysis with how costs and profits change with a change in volume. In order to development of future competition, CVP analysis can help managers to know about the relative strengths and weaknesses and to help managers make better decisions, accountants evaluate the quality of the techniques they use, given the organizational setting and decisions to be made.
So Ma Ao center school has his own main enrollment target to meet the needs of students and major social, Capacity enhancement needs of the students to get more students of all ages.