Reference no: EM131292149
Below is data for Company XYZ. Assume that the relevant range of activity is 1 to 800 units. The sales activity for Company XYZ for January and February are provided below.
January Sales = 500
February Sales = 550
Selling price per unit $ 6,000
Selling expenses
cost of goods sold - per $ 4,000 per unit
delivery expense $ 200 per unit
sales commissions 5% sales
sales salary $ 52,000 per month
advertising $ 7,000 per month
utilities $ 12,000 per month
rent of showroom $ 20,000 per month
insurance $ 7,000 per month
property taxes $ 5,000 per month
depreciation of $ 32,000 per month
Administration expenses
executive salary $ 105,000 per month
depreciation of office $ 3,000 per month
clerical salaries $ 15,000 per month
rent of administrative $ 17,000 per month
insurance expense $ 3,000 per month
utilities $ 4,000 per month
1) What is the amount of contribution per unit?
2) What is the contribution margin ratio?
3) Using the contribution margin per unit, compute the break-even point in units.
4) Using the contribution margin ratio, compute the break-even point in sales dollars.
5) Prepare and income statement (using contribution format to support your answers to questions #3 and $4).
6) What was the margin of safety in January? in February?
7) Under the current cost structure, how many television must they sell to make a before-tax profit of $150,000?
8) Prepare an income statement (using contribution format to support your answer to question $7).
9) Bell company is projecting data for March activities. They are considering three different plans.
a) They could increase the amount that they spend on advertising by $10,000. They do not plan to change the selling price per unit. If this plan is implemented, they estimate that sales volume will increase by 20 units.
b) They could decrease the selling price by 10% and increase the spending for advertising by $20,000. If this plan is implemented, they estimate sales volume will increase by 60 units.
c) They could increase advertising expense by $40,000 and increase the selling price by 10%. If this plan is implemented, they estimate that sales volume will decrease by 25 units.
Evaluate the above plans by preparing comparative income statements for the three alternatives under consideration. Determine the break-even point for each alternative. Which of the three would you recommend? Why?
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