 In this presentation we will continue on with our comprehensive problem. In prior presentations we took a look at the trial balance. We created the standard type of income statement from it. Then we created the contribution margin income statement. That's what we're generally using with the CVP analysis. These are the tools we have breaking out between variable and fixed costs. And then we have the contribution margin per unit showing this information on a per unit basis, which is doable given the fact that we have broken out the variable and fixed portion and therefore have that relationship for the revenue and the variable costs and the contribution margin. We then looked at the break even point, which is going to be our standard type of calculation, break even in units, two methods to calculate the break even in dollars. Now we're going to look at forecasts into the future. This is what the CVP is very, very useful for. Once we have this broken down into variable and fixed costs, we project out into the future and try to think of what would happen, what if this happened, what if that happened, and then think about different type of forecasting scenarios into the future. So that's what we will consider now. And we're going to basically set up our same kind of contribution margin type of income statement just with a different mindset. Our mindset now, of course, is that we're forecasting into the future. Whenever you consider forecasting into the future, just remember that we're always looking at the last year's numbers. And then we want to consider any modifications to those numbers. So we've calculated our break even point and our CVP analysis to contribution margin contribution margin per unit sales sales per unit, variable costs, variable costs per unit, all with prior time period numbers. And that's prior time period numbers is usually what we have with financial accounting. That's our starting point with projecting managerial accounting as well. But then of course, we would modify that in any way that we think is appropriate as we think about the future, things that will change in the future that may make the last time period different from the future time period. But as you think about this shift your mindset, we're of course now in the future now, we're forecasting in the future, we're just kind of saying, what if what if this happens? What if that happens? What should we do? What's the plan here? And we will work through a similar contribution margin income statement for that type of questioning. So we'll start off with the revenue or sales is going to be our first items, we're going to break out those items that we can put into a variable type nature, those that will that will change with the level of production, things like revenue, sales, the variable costs and the contribution margin. So I'm going to break this out into a per unit basis. So we're going to say that the revenue per unit is in essence our sales price, which we calculated over here, that's going to be our sales price. Again, it could change if we're forecasting into the future, we're going to use the same number here, we're going to assume that our revenue is going to be constant, same sale per unit of what we're selling in the next year. Then we'll have variable costs per unit. So I'm going to say that this equals, and I'm going to go over to the variable costs. So we got total variable costs per unit. And that's going to be our second item. And the number will be pulled over as well as this 168 variable costs per unit. And that's going to give us our contribution margin per unit. So the contribution margin per unit, which once again, I'll pull over from here, it's going to be the subtraction of those two. So sales or revenue per unit, total variable costs per unit, subtracting those out, that gives us our contribution margin on a unit by unit basis. Now, what we want to be able to do here is say, well, what happens if we sell different levels of units, different numbers of units, what will happen to our bottom line number? Let's start with the break even point, which we've calculated, and that'll allow us to test the break even point in units, as well as see the test for the break even point in terms of the dollar amount. So we'll say, okay, what would happen if we had the break even point at 3,321 units? We'll say, all right, then the revenue is going to be equal to, I'm just going to pull over these same units, that same 3,321 units that we sell. Therefore, the amount per unit times this 3,321 is going to give us our revenue 946346. That's our sales amount that of course matches the break even point in revenue in dollars, as well as the break even point here in units calculated on this one. And then we're going to say the same, I'm going to bring the same number of units down to the variable costs, because they act in a similar fashion. And therefore we'll take the 168 times the 3,321. And that gives us our 557,846. And then the contribution margin also acts in a similar fashion. So I'm just going to say this equals the 3,321. And we can calculate here two different ways, basically double checking our number one, we can take this number minus this number, sales or revenue minus variable costs, totals, these are the totals now, that gives us the 388500. We can also calculate that number as the 117 contribution margin per unit times the 3,321. Isn't that nice? That's the beauty of the, this type of format, the contribution margin type income statement format. And then we're going to say this is going to be the fixed costs. So I'll say fixed costs. And we'll then pick up the fixed costs by saying equals and we'll pick up the fixed costs, we can pick it up here. So the 388500 is our fixed costs. And you'll notice those two are the same number. That's because we just calculated our break even point. And therefore our forecasted profit, or net income forecast net income is this number minus this number or zero at the 3,321, because that's our break even point in units, break even point in dollars, we just basically verified that the nice thing we can do now is say, well, obviously, we're looking to make the profit here, we can say, well, how many units do we have to sell to make a certain profit? Well, one way we could do that is we could just change this one number with the forecasting, something we cannot do easily with a standard type of income statement. This allows us to set things up pretty easily. So I can say, well, what would happen if we sold 4000 units, for example, and then the forecasted profit would be 79500. What would happen if we sold 5000? Then we can say, well, the forecasted process profit would be 196500. This is the type of forecasting we want to be able to do. This is the type of forecasting that is allowed through breaking out the costs by behavior variable and fixed costs. Next thing we might want to consider is, what if we have a certain number of profit in mind, like 150,000? That's what we want to make. What if we have that in mind? How can we do a calculation using these numbers, using this method, CDP analysis, to get to that profit number? One way we could do it, of course, is to just keep on changing this. I'm not going, I'm at 196500. What if I change this and made it 4000? Now it's way, it's too low. What about 4500? Now it's getting close. It needs to go up a little bit. How about 4600? And so on. That's pretty close. So we could do that. But if we want to do it exactly and go to this number, we can do a pretty simple calculation to do that very similar to the break even point type of calculation. So similar type of calculation, we can take the fixed cost. I'm going to pull that to the inside and say that that's going to be the 3885. And then we're just going to add to that the targeted, let me just call it call it net income. It might just be called income sometimes, but that's a little deceiving, because you might see think that that is the top line. And we're really talking about the kind of the bottom line, the net income in essence, and we want it to be 150,000. So then if we add those up, we're going to sum these up, we're just adding those two items up, I use the sum function to do that. This is basically our forecasted cost and income forecasted cost and net income. And now we're going to take our contribution margin per unit. So the contribution margin per unit, and that's going to be our 117. So this is going to be equal to the 117 up top. And then we have the units to achieve the target. And that's going to be equal to the forecasted cost and targeted net income, divided by the contribution margin per unit. So if we if we think about that, let me add some I'll add an underline here and we'll double underline this one. So if we consider that, that would make sense. It's the same calculation that we have over here, we have the fixed costs, that's the fixed cost. This is how much money we're making each time we sell something over and above the variable costs, then we have to divide this into that to get how many units we need to sell. Well, if we need a profit, in addition to the fixed cost of 150, we would have this is the fixed cost plus the profit we want to get to the net income. And that would be the fixed cost plus the profit. This is how much we get with each unit sale after variable costs. And if we divide that in, that means we have to sell 4603 units, that's our break even point in units. Now if we wanted our break even point in terms of sales, we can apply these two methods in a similar fashion as well, to break out that the sales number that would be needed. And notice we can kind of do that up top to if I if I say that we want this it's pretty close here right. If I said this equaled the 4603, then of course we would get our net income of 150,000. So we'd have to sell 4603 to get to 150,000. Our revenue that we would need then is this 1,311731, which of course is this number times the sales per unit, the revenue per unit.