Description
Can you make response each posted below;
Here is the instruction below:
Go to the P22-3A problem in your text. See the “Do it” example for information on break even analysis (also found in the Digital Book under Course Resources).
Compute the breakeven point for fiscal year 2017.
Compute the breakeven point in dollars under each of the alternative courses of action.
What course of action do you recommend and why?
Reference
Weygandt, J., Kimmel, P. & Kieso, D. (2015). Accounting principles (12th ed.). Hoboken, NJ: John Wiley & Sons, Inc.
1. From: Nancy Noel posted Mar 1, 2018 5:20 PM
P22-3A Tanek Corp.’s sales slumped badly in 2017. For the first time in its history, it operated at a loss. The company’s income statement showed the following:
| Units sold: | 500,000 | ||||||
| Sales total: | $2,500,000.00 | ||||||
| Net Loss: | $(100,000.00) | ||||||
| 2017 Unit Selling Price: | $5.00 | ||||||
| Total | Variable | Fixed | Average Total Cost (Total / Quantity) | ||||
| Cost of goods sold | $2,140,000 | $159,000 | $550,000 | Break-even total | |||
| Selling expenses | $250,000 | $92,000 | $158,000 | ||||
| Administrative expenses | $210,000 | $68,000 | $142,000 | ||||
| Total Cost and Expenses | $2,600,000 | $319,000 | $850,000 | $5.20 | |||
2018 Proposals:
| Option 1 - 20% Increase to Selling Price | |
| 20% increase of selling price | $1.00 |
| New sales price | $6.00 |
| Total sales at $6 | $3,000,000.00 |
| Profit | $400,000.00 |
| Break-even | $5.20 |
| Option 2 - Decrease Salaries and Give Commission | |
| New Salary amount | $60,000.00 |
| 5% Commission | $25,000.00 |
| New Total Salaries | $85,000.00 |
| Remaining Overhead Expenses after decrease to salary | $2,540,000.00 |
| New Total Overhead | $2,625,000.00 |
| Profit | $125,000.00 |
| Break-even | $5.25 |
I would recommend that the selling price be raised by $1 or 20% from 2017. The total profit would be $400,000 if other expenses did not increase. Where lowering the salary and offering a 5% commission only brings in $125,000 profit, plus the company would have unhappy employees.
Weygandt, J., Kimmel, P. & Kieso, D. (2015). Accounting principles (12th ed.). Hoboken, NJ: John Wiley & Sons, Inc.
2. From: Jaime Sanders posted Mar 3, 2018 10:52 PM
Break-even point for FY17:
(sales-variable costs)/sales=contribution margin
(2,500,000-1,750,000)/2,500,000
750,000/2,500,000=.3=30%
Fixed Cost/Contribution margin ration=break-even point dollars
850,000/.3=$2,833,333.33
Break-even point at 20% increase:
$2,500,000/500,000=$5
$5*20%=$1
$5+$1=$6
500,000*$6=$3,000,000
(3,000,000-1,750,000)/3,000,000
1,250,000/3,000,000=.42=42%
850,000/.42=$2,023,809.52
Break-even point with changes to computation of salaries:
Contribution Margin=30%
Sales Commission:
2,500,000*.5=$125,000
Total salaries
$60,000+$125,000=$185,000
Total fixed costs:
$850,000+$35,000=$885,000
$885,000/.30=$2,950,000
I would recommend that the selling price be increased by 20%. This increase results in a lower break-even dollar amount and would be more attainable with continued sales of the same volume.
Jaime Sanders
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Accounting Principles (12th ed.). Hoboken, NJ: John Wiley & Sons, Inc.
Explanation & Answer
Attached.
Running Head: Response to CVP Analysis
1
Response to CVP Analysis
Institutional Affiliation
Date
Response to CVP Analysis
2
Response to Nancy Noel.
The breakeven point is defined as the state where a company’s sales volume earns zero profits.
The breakeven point can be reported in both sales and units sold (contribution approach). For
Nancy Noel, the first calculation was to determine the net earnings for the company. Where the
net earnings were arrived at after deducting the total costs and expenses from the sales revenue
(2,500,000 – 2,600,000 = -100,000). From her calculations, she realized a net loss. She further
broke the income statement in ...
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