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Presentation/PPT
27/08/2022
[The following information applies to the questions displayed below.]
Monterey Co. makes and sells a single product. The current selling price is $15 per unit. Variable expenses are $9 per unit, and fixed expenses total $34,300 per month. (Unless otherwise stated, consider each requirement separately.)
7.
value:
0.93 points
Required information
Required:
a. Calculate the break-even point expressed in terms of total sales dollars and sales volume. (Do not round intermediate calculations.)
b. Calculate the margin of safety and the margin of safety ratio. Assume current sales are $100,750. (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.)
c. Calculate the monthly operating income (or loss) at a sales volume of 5,050 units per month. (Do not round intermediate calculations.)
d. Calculate monthly operating income (or loss) if a $2 per unit reduction in selling price results in a volume increase to 8,000 units per month. (Do not round intermediate calculations.)
e. What questions would have to be answered about the cost-volume-profit analysis simplifying assumptions before adopting the price cut strategy of part d? (Select all that apply.)
Does the increase in volume move fixed expenses into a new relevant range?
Does the increase in volume move variable expenses into a new relevant range?
Are variable expenses really linear?
Are fixed expenses really linear?
f. Calculate the monthly operating income (or loss) that would result from a $1 per unit price increase and a $6,000 per month increase in advertising expenses, both relative to the original data. Assume a sales volume of 5,050 units per month. (Do not round intermediate calculations.)
Management is considering a change in the sales force compensation plan. Currently each of the firm’s two salespeople is paid a salary of $2,500 per month.
g-1. Calculate the monthly operating income (or loss) that would result from changing the compensation plan to a salary of $400 per month, plus a commission of $0.85 per unit, assuming a sales volume of 5,050 units per month. (Do not round intermediate calculations.)
g-2. Calculate the monthly operating income (or loss) that would result from changing the compensation plan to a salary of $400 per month, plus a commission of $0.85 per unit, assuming a sales volume of 6,450 units per month. (Do not round intermediate calculations. Losses should be indicated by a minus sign.)
h-1. Assuming that the sales volume of 6,450 units per month achieved in part
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