Managerial Accounts

312 Chapter 7 Cost-Volume-Pro{it Analysis

Required:

l. C'alculate the companl.'s curent income and determine the level of dollar -sales rleeded to double that figure, assuming that nranufhcturing operations retnain in lhe ljnited States.

2. Detsrminethebreak-er.enpointinspeakersetsiloperationsareshiftedtoMexico. 3. Assumc that managernent desires to achieve the Mexican break-even point: hon'ever operations

r.r'i1l remain in thc Unitcd States.

a. 11'variable costs remain constant, what must management do 1() fixed costs? By how muoh ntust fixed costs ohange?

D. If ilxecl costs remain conslant. r.vhat rnust managelnent do to the variable cost per unit'? By hou'' uruch must unit variable cost cl-range?

4. Determine the irlpact (increase, clecrease. or no etlect) o1'the tbllorving opel'ating changes. a. Elfect ofan ilcrease irl <iirect matcrial costs on the break-even poirlt' b. Effcct of an increase in tlxed adm iniskative costs on the un il contribution margin. c. Eflbot ol an increase in thc unil contribution margil on net income r/, F,{Iect ol.a tlecrease in the number ofunits sold on the bteak-even point.

Problem 7-38 Sales L4ix a!"d Eiliployee

Corrpensation; ilPerating

Changes

6

Problem 7-39 Leverage, Analysis oi

0peratrng Change

l..arvrence f'orporation s*lls trvo ceilirrg lans. Deluxe anC []asic. Currcnt salcs total 60.000 Lrnits. consist-

ing ol.-39.000 i)elrxe i,nits and 21"000 Basic units" Selling price and variabie cost intbrmation lbllon.

:

$74

41

Selling price

Varrable cost

$Bo

65

Salcspeoplc c1i-reirrl) receir,e. flat salalies that tcital $.100"000. i\4anagement is contemplating a changc

to a compensation plan that is based cln commissions in an e flbrl to hoost the companl"s presencc in thc

rnarketplace- Tso plans are under consideration:

plan A: lt)9/o commission computeil or1 gross dollar sales. Delure sales are expected to tolal 45"500 units: lhsic sales are anticipated to he 19"500 units'

plan B: 309ro commissiolr cor.nputed on Lhe basis olprodnction contribution nlargins. L)eluxe sales are anticipateti to be 26.000 units: Basic sales are expccted to total 39.000 units.

Required:

l. llclirt,: tlle tcnll .utlt.; ttti.t. 2. Cornparing Plan ,'\ to the crtnent compensatioll arrangement:

a. Will plan A achieve managemeul's ohjectivc o{'an incrcased presence in the ntarketplace'? Brief'l1 explain.

6. From a salcs-ntir perspcctivc. q,ill the salespeople lre prornoting thc produci that one *'ould logical ll' expect? Ilrielly d iscuss

c. Will the sales firrce likely be satisfied u'ith thc resr-rlts of Plan A'7 Why'1 d \\,i11 Larvrencc likelv be sarlisf-red r.r'ith the resulling inrpact olPlan A on conlpan,\'prolitabilitl")

\\'h1'l

3. Assume thal Plan B is under consideration. ri. Compare Plan A and Plan B rvith rcspect lo tolal rLnils solc'l and thc sales mix. ('ontulcnt on thc

rcsults.

D. ln conrparis6l rvith flat salaries. is I'lan B mor(j attractive to the sales lbrcc'.''lb the compatrl'? Show calculations to sllppofi .\our ans\\'ers.

Consolidarcd irrdustries is stu<1-ting the aildition ola uerl'r'alve to its prodtrct line.'l-he valve r'rould bc

uscil b). nranulhcturers ol irrigation equipment. I'he conrpan) anticipates stal'ting r'ii1h a relativel)' 1o\\

sa1:s Yolul11e and lhen boostiirg clenrancl over the ne\t scleral -\'cars. A trerv salesperson must be hircd

because Consolidated's curent siiies fbrce is ntirking at ca1-racit1" Iwo conrpetlsation plans are undct

consideratiot.t:

I,lan A: An annual salarl o11i22.000 plus a l09ir conrmission haseel on gross dollar sales.

Plan B:,,\n annLral salarl'o1'1i66-000 aud no cttmrlissiot't.