Reference no: EM132452885

Problem - Kiltop Company sells take-away food. The projected income statement for the coming year follows:

	$
Sales	480,000
Less: variable costs	(249,600)
Contribution margin	230,400
Less: Fixed costs	(180,000)
Net profit	50,400

Required -

1. Compute the contribution margin ratio for Kiltop.

2. How much revenue must Kiltop earn in order to break-even?

3. What volume of sales must be earned if Kiltop wants to earn an after-tax profit equal to 8 per cent of sales? Assume that the tax rate is 34 per cent.

4. What is the effect on the contribution margin ratio if the unit selling price and unit variable cost each increase by 10 per cent?

5. Suppose that management has decided to give a 3 per cent commission on all sales. The projected income statement does not reflect this commission. Recompute the contribution margin ratio assuming that the commission will be paid. What effect does this have on the break-even point?

6. If the commission is paid as described in requirement 5, management expects sales revenues to increase by $80,000. Is it a sound decision to implement the commission? Support your answer with appropriate computations.