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Calculate the contribution margin and net profit

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Reference no: EM132550757

Noah Enterprise is studying the addition of a new product that would have an expected selling price of RM160 and expected variable product cost of RM100 per unit. Anticipated demand is 8,000 units. A new salesperson must be hired because the company's current sales force is working at capacity.

Two compensation plans are under consideration:

Plan 1: An annual salary of RM32,000 plus 10% sales commission-based sales revenue.

Plan 2: An annual salary of RM140,000 and no sales commission

Required:

Question a. Calculate the contribution margin and net profit of the two plans at 8,000 units.

Question b. Calculate break even point (unit and sales) and margin of safety (unit) of the two plants. Advice to the management which plan to be adopted.

Question c. Suppose management plan to spend RM30,000 on advertising programme of the two plants, how many additional units must company sell to justify this additional expenditure?

Reference no: EM132550757

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