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?