1 answer

ADAM Corporation currently produces and sells a single product. Data concerning that product appear below: Per...

Question:

ADAM Corporation currently produces and sells a single product. Data concerning that product appear below: Per Unit Percentag

ADAM Corporation currently produces and sells a single product. Data concerning that product appear below: Per Unit Percentage Selling price $200 100% Variable expenses 60 30% Contribution margin $140 70% Fixed expenses are $280,000 per month. The company is currently selling 7,000 units per month. Proposed situation: The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed adding a commission (variable cost) of $10 per unit. In exchange, the sales staff would accept an overall decrease in their salaries of $33,000 per month. The marketing manager predicts that introducing this sales incentive would increase monthly sales by 200 units. Required: 1) Compare the break-even in units under both the existing and proposed situation. 2) Compare the margin of safety in dollars (level of sales in dollars less break-even sales in dollars) under both the existing and proposed situation. 3) Compare the monthly net operating income under both the existing and proposed situation? 4) Based on your previous comparison, which situation will you recommend (existing or proposed)?

Answers

Requirement (1) Computation of Break Even in units under both the existing and proposed situation : Break Even in Units = Fix

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