Act460 Week 3 Essays

Act460 Week 3 Essays Act460 Week 3 Essay Act460 Week 3 Essay Original Data: selling price: 40. 00 Variable Expenses: Invoice Cost: 18. 00 Sales Commission: 7. 00 Total Variable Expenses: 25. 00 Fixed Expenses: Rent: 80,000. 00 Advertising: 150,000. 00 salaries: 70,000. 00 Total Fixed Expenses: 300,000. 00 1. Calculate the annual break-even point in dollar sales and in unit sales for Store 36. Unit Contribution Margin = selling price per unit variable Expenses Unit Contribution Margin = 40. 00 25. 00 Unit Contribution Margin = 15. 0 per shirt Break even point = (target profit + fixed expenses) / unit contribution margin Break even point = (0. 00 + 300,000. 0) / 15. 00 Break even point = 20,000 units Break even point in sales = 20,000 x 40 = 800,000 up to 30,000 shirts sold each year. Clearly indicate the break-even point on the graph. 3. If 19,000 shirts are sold in a year, what would be Store 36s net operating income or loss? Sales (19,000 shirts x 40 per Variable Expenses (19,000 shirts x 25 per shirt) (475,000) Cont ribution Margin 285,000 Fixed expenses (300,000) Net operating Loss (15,000) 4. The company is considering paying the store manager of Store 36 an incentive commission of $3 per shirt (in addition to salespersons commissions). If this change s made, what will be the new break-even point in dollar sales and in unit sales? $3. 00 added commission increases the new variable price to $28 New Data: Manager Commission: 3. 00 Total Variable Expenses: 28. 00 Contribution Margin = 40. 00 28. 00 = 12. 00 0 new contribution margin Break even point = (0. 00 + 300,000) / 12. 0 = 25,000 0 breakeven point in units Break even point in sales = 25,000 x 40. 00 = 1,000,000 0 break even point in sales paying the store manager a $3. 00 commission on each shirt sold in excess of the break-even point. If this change is made, what will be the stores net operating ncome or loss if 23,500 shirts are sold in a year? Sales: 23,500 Original Break Even Point: 20,000 overage: 3,500 Profit to the store = overage in units x contribution margin 3,500 x 12. 00 = 42,000 Oprofit to the store 6. Re fer to the original data. The company is considering eliminating sales commissions entirely in its stores and increasing fixed salaries by $107,000 annually. a. If this change is made, what will be the new break-even point in dollar sales and in unit sales in Store 36? Selling Price: 40. 00 Total Variable Expenses: 18. 00 Additional salaries: 107,000. 00 Total Fixed Expenses: 407,000. 00 Contribution Margin = 40- 18 = 22. 00 0 new contribution margin Break even point = (0+407,000) / 22 = 18,500 0 new break even point in units Break even point in sales = 18,500 x break even point in sales. . Would you recommend that change be made? Explain. It is hard to recommend the proposed change from commission to salary based on the information provided. Additional information would be necessary to make an educated recommendation. What have the previous quarters shown in regards to sales? Although the change from commission to salary would increase the contribution margin and drop the break even point there are many fact ors that hould be considered before implementing this change. If sales teams are changed from variable pay to fixed pay, it may reduce their incentive to sell more shirts to clients. If the shirts essentially sell themselves and dont needed a motivated sales person then the switch may be beneficial. Ultimately it is most companys goals to reduce their break even point, but without further information it is undetermined as to whether this change would be beneficial for Shirts Unlimited. Garrison, R. H. , E. W. Noreen, and P. C. Brewer. Managerial Accounting. Fourteenth. New York: McGraw-Hill/lrwin, 2011 Print.