(a). Break-even point in sales dollars under current policy = $74000
Explanation;
Formula of break even is as follow;
Break-even in sales dollars = (Fixed costs / pv ratio
Sales = $130,000
Variable costs = 58500 + 16250 = 74750
Contribution = 130000 - 74750 = 55250
pv ratio = 55250 / 130000 = 0.425
Break-even in sales dollars = 31450 / 0.425 = 74000
part b)
Break even point in sales dollars = Total Fixed Cost/ Contribution Margin
Total Fixed Cost = 14350+17100+13000=44450
Contribution Margin Ratio= Sales - Variable Cost / Sales
=130000- (58500+13000)/130000
=58500/130000
= 0.45
Break Even Point in Sales = 44450/0.45 = 98777.78 = $98778
c. Degree of operating leverage:
Sales agents | Own sales staff | |
Sales | 130,000 | 130,000 |
Variable costs | 74,750 | 71,500 |
Contribution margin | 55,250 | 58,500 |
Fixed costs | 31,450 | 44,450 |
EBIT | 23,800 | 14,050 |
DOL | 2.32 | 4.16 |
Degree of operating leverage ( DOL) = Contribution margin / EBIT
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