AEK Ltd has prepared its income statement, summarised below, for the year ended 30 June 2016: Sales
Question:
AEK Ltd has prepared its income statement, summarised below, for the year ended 30 June 2016:
Sales revenue (40000 units) Variable expenses | $ | 256000 192000 |
Fixed expenses | 64000 40000 | |
Profit | $ | 24000 |
The company is evaluating three independent situations and has asked for your assistance.
Required
A. If the company hires a new salesperson at a salary of $36 000, how much must sales increase in terms of dollars to maintain the company’s current profit.
B. If sales units increase 25% in the next year and profit increases 50%, would management perform better or worse than expected in terms of profit? Assume that there would be adequate capacity to meet the increased volume without increasing fixed costs. Comment on the variable cost per unit.
C. If a new marketing method would increase variable expenses (by an amount you should calculate), increase sales units 10%, decrease fixed costs 10%, and increase profit by 20%, what would be the company’s break-even point in terms of dollar sales if it adopts this new method? Assume that the sales price per unit would not be changed. Round your answer to the nearest whole number.
Contribution MarginContribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...
Step by Step Answer:
Accounting
ISBN: 978-1118608227
9th edition
Authors: Lew Edwards, John Medlin, Keryn Chalmers, Andreas Hellmann, Claire Beattie, Jodie Maxfield, John Hoggett