Question

Bubba's Western Wear is a western hat retailer in Lubbock, Texas. Although Bubba's carries numerous styles of western hats, each hat has approximately the same price and invoice (purchase) cost, as shown in the following table. Sales personnel receive a commission to encourage them to be more aggressive in their sales efforts. Currently, the Lubbock economy is really humming, and sales growth at Bubba's has been great. The business is very competitive, however, and Bubba, the owner, has relied on his knowledgeable and courteous staff to attract and retain customers who otherwise might go to other western wear stores. Because of the rapid growth in sales, Bubba is also finding the management of certain aspects of the business more difficult, such as restocking inventory and hiring and training new salespeople. $ 80.00 42.50 12.50 55.00 $ Sales price Per unit variable expenses Purchase cost Sales commissions Total per unit variable costs Total annual fixed expenses Advertising Rent Salaries Total fixed expenses $107,500 155,000 257,250 $519,750 Required: 1. Calculate the annual breakeven point, both in terms of units and in terms of sales dollars. 2. If Bubba's sells 22,000 hats, what is its before-tax income or loss? Support your answer by preparing a contribution income statement. 3. If Bubba's sells 33,000 hats, what is its margin of safety (MOS) and MOS ratio? 4. Bubba is considering the elimination of sales commissions completely and increasing salaries by $164,625 annually. What would be the new breakeven point in units? What would be the before-tax income or loss if 22,000 hats are sold with the new salary plan? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4
please fill in the blank! thank you!

Answer 1

1) computation of break even point in units and in dollars

Break even point in units= fixed cost/CONTRIBUTION MARGIN PER UNIT

CONTRIBUTION MARGIN PER UNIT= selling price - total variable cost per unit

=$80 - $55= $25

Break even point in units= $519750/$25

= 20790units

Break even point in dollars

= 20790units × $80 = $1663200

2)if bubba's sells 22000hats what is his net income/loss prepare CONTRIBUTION MARGIN statement

Particular	amount ($)
Sales (22000×$80)	1760000
(-) variable cost (22000×$55)	(1210000)
CONTRIBUTION MARGIN	550000
(-) fixed cost	(519750)
Before tax income	30250

3)if bubba sells 33000hats what is it margin of safety and margin of safety ratio

Margin of safety = profit/CONTRIBUTION MARGIN ratio

CONTRIBUTION MARGIN ratio =$25/$80×100= 31.25%

PROFIT =CONTRIBUTION MARGIN - fixed expenses

= 33000×$25 - $519750=$305250

MARGIN of safety = $305250/31.25%

= $976800

margin of safety ratio = margin of safety/sales×100

= $976800/33000×$80

=$976800/$2640000×100

. = 37%

4)babba eliminate sales commission completely increase salaries by $164625 annually what would be the break even point in units and what is income or loss by selling 22000hats with new salary plan

NEW variable cost per unit =$55-$12.5 = $42.5

NEW CONTRIBUTION MARGIN PER UNIT = $80-$42.5= $37.5

new fixed expenses = $519750+$164625= $684375

Break even point in units = fixed expenses/CONTRIBUTION MARGIN PER UNIT

= $684375/$37.5= 18250units

profit = CONTRIBUTION MARGIN - fixed cost

= 22000×$37.5 -$684375

= $825000- $684375

= $140625

ALL THE BEST

PLEASE DO SUPPORT US

ANY DOUBT PLEASE COMMENT BELOW

THANK YOU

​​​​​