The following information is available for Lost Trails
Sales Price 150
variable manufacturing costs 85
Commission 10% of sales price
Fixed Costs $200,000
Answer the following
1. What is the contribution margin (CM) per unit?
2. What is the CM ratio?
3. What is the break-even point in units?
4. What is the break-even point in dolllars?
5. What is our income before taxes if we sell 5,000 units?
6. How many units must we sell to earn $90,000 after taxes if the tax rate is 40%?
7. Suppose we are selling 4,800 units. We think that if we lower the sales price by 10% that sales will increase 25%.
Determine the income under both alternatives. (Now and if we lower price)
8. We can buy a new machine that will reduce variable manufacturing costs by $6 per unit. Fixed costs will increase $90,000. We are currently selling 5,000 units. Should we bjuy the machine at this level? Show why or why not.
9. At what level of units would we be indifferent to buying or not (that is income would be the same)
10. We are considering elimianting the commission and paying fixed salaries of an additional $100,000 per year. We are selling10,000 units. Would we be better off to eliminate the commission? Show why or why not.