Cost-Volume-Profit

Can you make response each posted below;

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Here is the instruction below:

Go to the P22-3A problem in your text. See the “Do it” example for information on break even analysis (also found in the Digital Book under Course Resources).

Compute the breakeven point for fiscal year 2017.

Compute the breakeven point in dollars under each of the alternative courses of action.

What course of action do you recommend and why?

Reference

Weygandt, J., Kimmel, P. & Kieso, D. (2015). Accounting principles (12th ed.). Hoboken, NJ: John Wiley & Sons, Inc.

1. From: Nancy Noel posted Mar 1, 2018 5:20 PM

P22-3A Tanek Corp.’s sales slumped badly in 2017. For the first time in its history, it operated at a loss. The company’s income statement showed the following:

Units sold:

500,000

Sales total:

$2,500,000.00

Net Loss:

$(100,000.00)

2017 Unit Selling Price:

$5.00

Total

Variable

Fixed

Average Total Cost (Total / Quantity)

Cost of goods sold

$2,140,000

$159,000

$550,000

Break-even total

Selling expenses

$250,000

$92,000

$158,000

Administrative expenses

$210,000

$68,000

$142,000

Total Cost and Expenses

$2,600,000

$319,000

$850,000

$5.20

2018 Proposals:

Option 1 – 20% Increase to Selling Price

20% increase of selling price

$1.00

New sales price

$6.00

Total sales at $6

$3,000,000.00

Profit

$400,000.00

Break-even

$5.20

Option 2 – Decrease Salaries and Give Commission

New Salary amount

$60,000.00

5% Commission

$25,000.00

New Total Salaries

$85,000.00

Remaining Overhead Expenses after decrease to salary

$2,540,000.00

New Total Overhead

$2,625,000.00

Profit

$125,000.00

Break-even

$5.25

I would recommend that the selling price be raised by $1 or 20% from 2017. The total profit would be $400,000 if other expenses did not increase. Where lowering the salary and offering a 5% commission only brings in $125,000 profit, plus the company would have unhappy employees.

Weygandt, J., Kimmel, P. & Kieso, D. (2015). Accounting principles (12th ed.). Hoboken, NJ: John Wiley & Sons, Inc.

2. From: Jaime Sanders posted Mar 3, 2018 10:52 PM

Break-even point for FY17:

(sales-variable costs)/sales=contribution margin

(2,500,000-1,750,000)/2,500,000

750,000/2,500,000=.3=30%

Fixed Cost/Contribution margin ration=break-even point dollars

850,000/.3=$2,833,333.33

Break-even point at 20% increase:

$2,500,000/500,000=$5

$5*20%=$1

$5+$1=$6

500,000*$6=$3,000,000

(3,000,000-1,750,000)/3,000,000

1,250,000/3,000,000=.42=42%

850,000/.42=$2,023,809.52

Break-even point with changes to computation of salaries:

Contribution Margin=30%

Sales Commission:

2,500,000*.5=$125,000

Total salaries

$60,000+$125,000=$185,000

Total fixed costs:

$850,000+$35,000=$885,000

$885,000/.30=$2,950,000

I would recommend that the selling price be increased by 20%. This increase results in a lower break-even dollar amount and would be more attainable with continued sales of the same volume.

Jaime Sanders

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Accounting Principles (12th ed.). Hoboken, NJ: John Wiley & Sons, Inc.