How would your error affect breakeven sales

Assignment Help Financial Accounting

Reference no: EM133095007

Accounting and Finance for Managers

Part 1: You have just begun your summer internship at Omni Instruments. The company supplies sterilized surgical instruments for physicians. To expand sales, Omni is considering paying a commission to its sales force. The controller, Matthew Barnhill, asks you to compute: (1) the new breakeven sales figure, and (2) the operating profit if sales increase 15% under the new sales commission plan. He thinks you can handle this task because you learned CVP analysis in your accounting class.

You spend the next day collecting information from the accounting records, performing the analysis, and writing a memo to explain the results. The company president is pleased with your memo. You report that the new sales commission plan will lead to a significant increase in operating income and only a small increase in breakeven sales.

The following week, you realize that you made an error in the CVP analysis. You over looked the sales personnel's $2,800 monthly salaries and you did not include this fixed market? ing cost in your computations. You are not sure what to do. If you tell Matthew Barnhill of your mistake, he will have to tell the president. In this case, you are afraid Omni might not offer you permanent employment after your internship

Requirements

Question 1. How would your error affect breakeven sales and operating income under the proposed sales commission plan? Could this cause the president to reject the sales commission proposal?

Question 2. Consider your ethical responsibilities. Is there a difference between: (a) initially making an error, and
(b) subsequently failing to inform the controller?

Question 3. Suppose you tell Matthew Barnhill of the error in your analysis. Why might the consequences not be as bad as you fear? Should Barnhill take any responsibility for your error? What could Barnhill have done differently?

Question 4. After considering all the factors, should you inform Barnhill or simply keep quiet

Part 2. This exercise continues the Lawlor Lawn Service, Inc., situation from Exercise 18-36 of Chapter 18. Lawlor Lawn Service currently charges $100 for a standard lawn ser vice and incurs $60 in variable cost. Assume fixed costs are $1,40
Requirements

Question 1. What is the number of lawns that must be serviced to reach breakeven?

Question 2. If Lawlor desires to make a profit of $1,800, how many lawns must be serviced?

Attachment:- Accounting and Finance for Managers.rar

Reference no: EM133095007

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