Basic information $1,571 Assumptions: Sales price per ticket = $1,572 Variable c
ID: 2419225 • Letter: B
Question
Basic information
$1,571
Assumptions:
Sales price per ticket = $1,572
Variable cost per unit = $786 (cost of goods sold of $707 + Sales commissions of $79)
Calculate the breakeven point in units for 2006 and record in the table below.
2003
2004
2006
BEP in units
3,611.11
4,191.25
rounded to whole units
3,612
4,192
Why are the amounts rounded to whole units?
Complete the table below using the financial information provided in Exhibit 1and the information in the table above. Analyze selling price per unit, variable cost per unit, and total fixed cost information, as well as operating statistics, to explain the cause of change.
Years
Change in BEPt in units
Direction of change
Cause of change
2003 - 2004
2004 - 2006
Reflection: How does your individual answer for this question differ from the information you just completed?
Alternative 1: Decrease average sales ticket price by 10% and increase number of sales tickets (unit sales) to 7,500 sales tickets.
For each question, answer yes or no for each piece of information listed.
Information
For this alternative only, is there a change in this item that affects calculation of net income? Yes or No
For this alternative only, is there a change in this item that effects the calculation of the new breakeven point? Yes or No
Selling price per unit
Variable cost per unit
Total fixed costs
Net income
Sales volume
Basic information
Exhibit 1 Hallstead Jewelers Income Statements for Years Ended January 31 (thousands of dollars) 2003 2004 2006 Sales $9,000,000 $8,000,000 $11,000,000 Cost of goods sold 4,050,000 3,600,000 4,950,000 Gross margin $4,950,000 $4,400,000 $6,050,000 Expenses Selling expense Salaries 2,021,000 2,081,000 4,085,000 Commissions 450,000 400,000 550,000 Advertising 254,000 250,000 257,000 Administrative expenses 418,000 425,000 535,000 Rent 420,000 420,000 840,000 Depreciation 84,000 84,000 142,000 Miscellaneous expenses 53,000 93,000 122,000 Total expenses $3,700,000 $3,753,000 $6,531,000 Net income $1,250,000 $647,000 $(481,000) Exhibit 2 Hallstead Jewelers Operating Statistics 2003 2004 2006 Sales space (square feet) 10,000 10,000 15,000 Sales per square foot $900 $800 $733 Sales tickets 5,000 5,000 7,000 Average sales ticket $1,800 $1,600$1,571
Explanation / Answer
2003 2004 2005 BEP in units 3,611.11 4,191.25 7609.414758 rounded to whole units 3,612 4,192 7610 BEP in units Fixed Cost/Sales-Variable cost per unit (6531000-550000)/(1572-786) 7609.414758 units Note: commission is variable so deducted from expenses The amounts are rounded to whole units because partial units cannot be sold , the whole units can be sold Years Change in BEPt in units Direction of change Cause of change 2003 - 2004 580 BEP sales going up Slight increase infixed cost 2004 - 2006 3,418 BEP sales going up There is high increase in fixed cost For this alternative only, is there a change in this item that affects calculation of net income? Yes or No For this alternative only, is there a change in this item that effects the calculation of the new breakeven point? Yes or No Yes Yes No No No No Yes No Yes Yes
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