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Accounting

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CASE 4-33
ACCOUNTING

 | 15% Commission| 20% Commission| Own Sales Force @ 7.5%| Sales| $ 16,000,000 | 100%| $ 16,000,000 | 100%| $ 16,000,000 | 100%| Variable Expenses:|  |  |  |  |  |  |
Manufacturing| $ 7,200,000 |  | $ 7,200,000 |  | $ 7,200,000 |  | Commissions| $ 2,400,000 |  | $ 3,200,000 |  | $ 1,200,000 |  | Total Variable Expenses| $ 9,600,000 | 60%| $ 10,400,000 | 65%| $ 8,400,000 | 52.5%| Contribution Margin| $ 6,400,000 | 40%| $ 5,600,000 | 35%| $ 7,600,000 | 47.5%| Fixed Expenses:|  |  |  |  |  |  |

Manufacturing Overhead| $ 2,340,000 |  | $ 2,340,000 |  | $ 2,340,000 |  | Marketing| $ 120,000 |  | $ 120,000 |  | $ 2,520,000 |  | Administrative| $ 1,800,000 |  | $ 1,800,000 |  | $ 1,725,000 |  | Interest| $ 540,000 |  | $ 540,000 |  | $ 540,000 |  | Total Fixed Expenses| $ 4,800,000 |  | $ 4,800,000 |  | $ 7,125,000 |  | Income before Income Taxes| $ 1,600,000 |  | $ 800,000 |  | $ 475,000 |  | Income Tax (30%)| $ 480,000 |  | $ 240,000 |  | $ 142,500 |  | Net Income| $ 1,120,000 |  | $ 560,000 |  | $ 332,500 |  |

1)

a) Break-even point in dollar sales if commission rate remains unchanged at 15%:

Dollar sales to break even = $0 + Fixed Expenses
Contribution Margin (CM) Ratio

CM Ratio = Total Contibution Margin = $6,400,000 = 0.40
Total Sales $16,000,000

Dollar sales to break even = $0 + $4,800,000 = $12,000,000 (Answer) 0.40

b) Break-even point in dollar sales if commission rate is increased to 20%:

Dollar sales to break even = $0 + Fixed Expenses
CM Ratio

CM Ratio = Total Contibution Margin = $5,600,000 = 0.35
Total Sales...