- Prepared the Contribution Margin and Breakeven Analysis on a spreadsheet for the below company
Case background
A relatively new company is struggling to understand its cost structure and the implications for profitability. Its president has hired you to help him figure out when the company's solutions will finally reach profitability with its current product mix and cost structure.
Here's the information given to you:
Projected sales for the next 12 months: $995,000.
Two main products:
Product 1 (sold to retailers or channel partners)
Product 2 (sold through an ERP provider)
The percentage of sales each product comprises:
Product 1 65%
Product 2 35%
The product is fully developed and the labor to develop the program was expensed in the period it was incurred. The only current cost to sell the program is the commission that must be paid and any other variable expenses listed below.
Commissions owed for product sales:
Product 1 20%
Product 2 30%
Other expenses:
Bad dept expenses 2% of total sales (includes charged sales)
Credit card fees 3% of sales charged on a card
Percentage of sales charged 30%
The following expenses are incurred whether or not any product is sold:
Software development staff salaries $446,650
Customer support salaries $124,560
Administrative salaries $102,500
Office expenses $ 76,190
Advertising & marketing expenses $ 31,750
Hosting expenses (network costs) $ 13,000