1. Waco Printing Company specializes in printing banners on a high quality, nylo
ID: 2417676 • Letter: 1
Question
1. Waco Printing Company specializes in printing banners on a high quality, nylon material that can withstand extreme temperatures. The company pays sale personnel a small base salary plus a large commission on each banner sold to encourage a large sales volume.
The following is a summary of the revenue and cost data:
Per Banner
Selling Price $400.00
Variable Costs
Materials $180.00
Sales Commission 80.00
Fixed Costs
Rent $3,200
Advertising 75,000
Sales salaries 3,000
Refer to the original data. If the company eliminates the sales commission and increases salaries by $50,800, what will be the new breakeven point in units? In sales dollars?
Explanation / Answer
If the sales commission is eliminated, then the contribution per unit = Sales price - Variable cost
Contribution per unit = 400 - 180 = $220
Contribution margin ratio = 220 / 400 = 55%
Fixed costs = 3200 + 75000 + 50800 = $129000
Break even point in units = Fixed cost / contribution per unit
= 129000 / 220 = 586 units
Break even point in Sales Dollars = Fixed cost / Contribution margin ratio
= 129000 / 55% = $234545.45
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