Reference no: EM132577665

Multi-products Ltd operates its diversified business with a structure of multiple divisions. The company is selling three products and their information of selling prices, variable costs per unit, planned sales mix and fixed costs are presented in the table below:

                                                                                     Product A                           Product B                          Product C

Selling Prices                                                           $7                                $16                            $25

Variable Costs (including sales commission)                       $4                                $11                            $16

Planned Sales Mix                                                        50%                               30%                         20%

Fixed Costs (including salaries of sales employees)  $960,000 per annum

• Currently, each sales employee is paid a fixed salary of $30,000 per annum plus commission of 10% on selling price for each unit and there is a total of 10 sales employees.
• The management in the headquarters is trying to decide whether to increase the commission-based pay of its sales employees for higher motivation leading to higher sales revenues generated.
• The sales director has proposed increasing the variable commissions to 20% on selling price and decreasing the fixed salary to $21,000 per annum for each sales employee.

Required:

Question (a) Determine the TOTAL units of ALL products to be sold per annum in order to break-even, AND the respective units of individual product A, B, C.

Question (b) At the planned sales mix, determine the TOTAL units of ALL products that must be sold in order to earn a target profit of $500,000, AND the respective units of individual product A, B, C.

Question (c) Calculate the new break-even point in TOTAL units if the proposal of the sales director is adopted (higher variable commission and lower fixed salary).