Question

Medical Supply is a retailer of home medical equipment. Last​ year, Xavier​'s sales revenues totaled $ 6 comma 200 comma 000. Total expenses were $ 2 comma 500 comma 000. Of this​ amount, approximately $ 1 comma 612 comma 000 were​ variable, while the remainder were fixed. Since Xavier​'s offers thousands of different​ products, its managers prefer to calculate the breakeven point in terms of sales dollars rather than units.

Xavier Medical Supply is a retailer of home medical equipment. Last year, Xavier's sales revenues totaled $6,200,000. Total expenses were $2,500,000. Of this amount, approximately $1,612,000 were variable, while the remainder were fixed. Since Xavier's offers thousands of different products, its managers prefer to calculate the breakeven point in terms of sales dollars rather than units. Read the requirements. The contribution margin ratio is 74 %. Requirement 3. What is the company's breakeven point in sales dollars? (Hint: The contribution margin ratio calculated in Requirement 2 is already weighted by the company's actual sales mix.) Begin by identifying the formula to compute the breakeven point in sales dollars. ( Fixed expenses + Operating income ) Contribution margin ratio - Breakeven sales in dollars (Round your answer up to the nearest whole dollar.) The breakeven point in sales dollars is $ 1,200,000 Requirement 4. Xavier's top management is deciding whether to embark on a $200,000 advertising campaign. The marketing firm has projected annual sales volume to increase by 18% as a result of this campaign. Assuming that the projections are correct, what effect would this advertising campaign have on the company's annual operating income? If Xavier embarks on this advertising campaign, sales revenue and variable costs will will cause the contribution margin to increase by 18 %. However, fixed costs will rise rise by by $ 18 %, which 159840 due to the advertising.

Answer 1

Given Sale Revenue : 6200000 Variable Cost = 1612000 cm Ratio - 1 Sales - Variable 1 Jx100 X 100 Sales Sales (6200000-1612000 6200 000 - X Goo o a loo leo 74% • Requirement 3 Break even point in dollars = fixed Expenses cm Ratio fixed Expenses = Total Expenses - Variable 2500000 - 1612000 - 888000 Break even in dollars = 888000 74% 1200.000

Requirement-4 as a result Both Sales & Variable costs will rise by 18% and contribution margin will also Thoreate by 187. and fixed costs will also Increase by $200000 due. to advertising.
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