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Breakeven Analysis

In: Business and Management

Submitted By iHado
Words 458
Pages 2
Beta company sells blouses in Washington, USA. Blouses are imported from Pakistan

and are sold to customers in Washington at a profit. Salespersons are paid basic salary

plus a decent commission on sales made by them. Sales and expense data is given below:

Selling price per blouse $80.00

Variable expenses per blouse:

Invoice cost $36.00

Sales commission $14.00

Total $50.00

Annual fixed expenses:

Rent $160,000

Marketing $300,000

Salaries $140,000

Total $600,000

1. Compute the number of units to be sold to break-even.

2. Prepare a CVP graph (break-even chart) and show the break-even point on the

3. If the manage is paid a commission of $6 blouse (in addition to the salesperson’s

commission), what will be the effect on company’s break-even point?

4. As an alternative to (3) above, company is thinking to pay $6 commission to

manager on each blouse sold in excess of break-even point. What will be the

effect of these changes on the net operating income or loss of the Beta company if

23,500 blouses are sold in a year?

5. Refer to the original data. What will be the break-even point of the company if

commission is entirely eliminated and salaries are increased by $214,000? Should

the company make this change?

(1) Calculation of break-even point:

Fixed expenses / Contribution margin per unit

$600,000 / $30

20,000 units

20,000 units × $80 = $1,600,000

(2) CVP graph or break-even chart:

(3) Break-even point if manager is also paid a commission of $6 per blouse sold:

The payment of a commission of $6 to manager will decrease the unit contribution

margin and increase the number of units required to sell to break-even.

$600,000 / $24

25,000 Units

Now the company requires 25000 units or $2,000,000 in sales just to break-even.

(4) Effect on net operating…...

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