Cost Behavior and Breakeven Analysis
COMM Company sells clothing for young adults. The firm has normal monthly fixed costs of $90,000 ($38,000 of this amount is fixed salaries). The firm's variable cost ratio averages 60%. The firm operates 3 stores in the mid-Atlantic region.
1. COMM Company management believes that monthly sales should average approximately $375,000 during 2014. Prepare a contribution type income statement using (1) the current cost structure model ( the model that includes salaries but no commissions) and (2) a second contribution type income statement using the proposed (fixed salary plus commission) model.
2. From the employees' perspective, what level of monthly sales dollars must COMM achieve so that their monthly compensation under the combination fixed salary/commission model is equal to the current monthly fixed salary amount (currently $38,000).
3. Prepare commentary (about 1/2 page) that reviews / evaluates the pros and cons of making the proposed compensation structure change. I'm looking for a well rounded response that reflects upon changes in break-even point, likely impact on employee morale / motivation, MSM operating profit at different sales levels, etc.