Sales price $45.00 Per unit variable expenses Invoice cost $25.50 Sales commissi

Question

Sales price $45.00 Per unit variable expenses Invoice cost $25.50 Sales commissions $4.50 Total per unit variable costs $30.00 Total annual fi xed expenses Advertising $22,000 Rent $18,000 Salaries $185,000 Total fi xed expenses $225,000 Requirements 1. calculate the annual breakeven point in unites sales and dollar sales. 2. If Hank's sells 20,000 hats, what is the before-tax income or loss? 3. If Hank's sells 30,000 hats, what is the margin of safety and margin of safety ratio? 4. Hank is considering the elimination of sales commissions completely and increasing salaries by $106,500 annually. What would be the new breakeven point in units? What would be the before-tax income or loss if 20,000 hats are sold with the new salary plan? 5. Identify and discuss the strategic and ethical issues in the decision to eliminate sales commissions ( see requirement 4). How do these strategic concerns affect Hank's decision? There is no prior information in the paragraph before the dollar information above. I think that I may have been able to correctly do 1 and 2 but I am not quite sure. This is what I have done for thos problems. Please let me know if I am correct or not? 1. BE#= 225,000/15= 15,000 # BE$= 225,000/.33= $681818.19 2. Target income $= [225,000 + (20,000*45)]/.33 = $3,409,090.91

Explanation / Answer

If Hank's sells 30,000, what is its margin of safety and margin of safety ratio? MOS= 30000-15000= 15000 MOSR=15000/30000 =0.5

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