Reference no: EM132704928

Luciano's Limited has prepared the following draft profit analysis for the current year.

Sales (15000 units)       $600,000

Variable expenses         345,000

Contribution margin         255,000

Fixed expenses              108,800

Profit                          $146,200

Required:

Answer each of the following four independent situations.

Problem 1. If the company's manager is considering increasing his salary by $34,000, how much must dollar sales increase to maintain the company's current profit?

Problem 2. If the company changes its marketing approach, it is expected that variable expenses will increase by 10%, fixed expenses will decrease by 15% and sales units and dollars will increase by 20%. Calculate the company's break-even point in terms of sales dollar if the new strategy is adopted. Assume that the sales price per unit would not be changed. Round your answer to the nearest dollar.

Problem 3. If the company decreases sales commissions, the variable expense would decrease by 10%. The company believes that unit sales would decrease by 5% due to the loss of sales representatives, even though the company plans to increase its advertising budget by $25,000. Should the company decrease the sales commission? Why?

Problem 4. If the company's profit increases 100% next year due to a 35% increase in sales, would performance be better or worse than expected? Assume adequate capacity exists to meet the increased volume without increasing fixed cost?