Assignment Problem: Break-Even and Other CVP Analysis
Quebec Inc. manufactures and sells a single product. The information that follows relates to the year just ended, when 230,000 units were sold:
Sales price per unit $10
Variable cost per unit $4.75
Fixed costs $930,000
Assignment Instructions:
a. Determine the number of units that Quebec sold in excess of its break-even point.
b. If current revenue and cost patterns continue, compute the dollar sales needed next year to produce a target income of $492,000.
c. Assume that a different compensation plan was in effect during the current year. Rather than pay six salespeople an average salary of $36,000 each, management has proposed that the salespeople receive a $10,000 base salary and a 9% commission based on gross sales.
1) Would the company have been better off financially if the new plan had been adopted for the year just ended? By how much?
2) What effect might paying a commission have on gross sales? Briefly explain.
d. In addition to the compensation plan described in part (c), Quebec is studying the impact of other operating changes as well. State whether you agree or disagree with the following findings of a newly hired staff accountant:
1) A rise in property taxes will increase the break-even point.
2) A decrease in raw material cost will increase the contribution margin and decrease total fixed costs.
Note - Need help with shaded areas in attached chart.
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Attachment:- Break-Even and Other CVP Analysis.rar