Reference no: EM13170008

Exercise

Glacial Company estimates that variable costs will be60% of sales, and fixed costs will total $926,000. The selling price of the product is $5.

Compute the break-even point in (1) units and (2) dollars.

(1)		Break-even sales			units
(2)		Break-even sales		$

Compute the margin of safety in (1) dollars and (2) as a ratio, assuming actual sales are $2,930,380.(Round ratio to 0 decimal places, e.g. 20%.)

(1)		Margin of safety		$
(2)		Margin of safety ratio			%

Problem 18-1A

Telly Savalas owns the Bonita Barber Shop. He employs6barbers and pays each a base rate of $1,300per month. One of the barbers serves as the manager and receives an extra $520per month. In addition to the base rate, each barber also receives a commission of $5.90per haircut.
Other costs are as follows.

Advertising		$260	per month
Rent		$960	per month
Barber supplies		$0.40	per haircut
Utilities		$170	per month plus $0.20per haircut
Magazines		$20	per month

Telly currently charges $11.70per haircut.

Determine the variable cost per haircut and the total monthly fixed costs.(Round variable costs to 2 decimal places, e.g. 2.25.)

Total variable cost per haircut		$
Total fixed		$

Compute the break-even point in units and dollars.(Round answers to 0 decimal places, e.g. 1,225.)

Break-even point			haircuts
Break-even point		$

Determine net income, assuming 2,370 haircuts are given in a month.

Problem

Dousmann Corp.'s sales slumped badly in 2014. For the first time in its history, it operated at a loss. The company's income statement showed the following results from selling618,000units of product: sales $2,472,000; total costs and expenses $2,616,200; and net loss $144,200. Costs and expenses consisted of the amounts shown below.

		Total		Variable		Fixed
Cost of goods sold		$2,163,000		$1,483,200		$679,800
Selling expenses		247,200		74,160		173,040
Administrative expenses		206,000		49,440		156,560
		$2,616,200		$1,606,800		$1,009,400

Management is considering the following independent alternatives for 2015.

1. Increase unit selling price24% with no change in costs, expenses, and sales volume.

2. Change the compensation of salespersons from fixed annual salaries totaling $154,500to total salaries of $61,800plus a6% commission on sales.

(a) Compute the break-even point in dollars for 2014.

(b) Compute the contribution margin under each of the alternative courses of action.

Compute the break-even point in dollars under each of the alternative courses of action.(Round selling price per unit to 2 decimal places, e.g. 5.25 and other calculations to 0 decimal places, e.g. 20% and also final answer to 0 decimal places, e.g. 1,225.)

Which course of action do you recommend?