Answer:
Solution 1: |
Existing contribution margin = Sales - Variable costs = $34,000,000 - $20,740,000 - $5,440,000 = $7,820,000 |
Contribution margin ratio = $7,820,000 / $34,000,000 = 23% |
Total fixed costs = $2,633,000 + $1,920,000 = $4,553,000 |
Break even sales = Fixed expenses / contribution margin ratio = $4,553,000 / 23% = $19,795,652.17 |
Solution 2: |
Contribution margin if company is having own sales staff = $34,000,000 - $20,740,000 - ($34,000,000*10%) = $9,860,000 |
Fixed cost if company is having own sales staff = $4,553,000 + $2,096,000 = $6,649,000 |
Contribution margin ratio = $9,860,000 / $34,000,000 = 29% |
Break even sales = Fixed expenses / contribution margin ratio = $6,649,000 / 29% = $22,927,589.21 |
Solution 3a: |
Existing net operating income = $32,67,000 |
Contribution margin = $7,820,000 |
Operating leverage = Contribution / Net operating income = $7,820,000 / $32,67,000 = 2.3936 |
Solution 3b: |
Operating income if company deploy own sales staff = $9,860,000 - $6,649,000 = $32,11,000 |
Operating leverage = Contribution / Net operating income = $9,860,000 / $32,11,000 = 3.07 |
Solution 4: |
Revised contributon margin = $34,000,000 - ($20,740,000 + $34,000,000*15%) = $8,160,000 |
New contribution margin ratio = $8,160,000 / $34,000,000 = 24% |
Desired operating income = $3,267,000 |
Fixed costs = $6,649,000 |
Desired contribution margin = $3,267,000 + $6,649,000 = $9,916,000 |
Revenue required to earn same operating income = Desired contribution margin / contribution margin ratio |
= $9,916,000 / 24% = $41,316,667. |
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