ABC Inc. has monthly fixed costs of $40,000 ($15,000 of this amount is fixed monthly salaries) and

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Question:

ABC Inc. has monthly fixed costs of $40,000 ($15,000 of this amount is fixed monthly salaries) and a variable cost ratio of 60%. Management requests your assistance in reflecting upon a proposed change in employee compensation.

A. Calculate the amount of monthly revenue required to achieve the breakeven point in monthly net operating income (NOI).

B. Calculate the amount of monthly revenue required to achieve monthly net operating income of $12,000.

C. Calculate the amount of monthly revenue required to achieve monthly net operating income equal to 18% of net operating income.

D. Prepare a contribution type income statement (skip the heading) assuming that the firm achieved monthly revenue of $180,000

E. Management is considering reducing monthly fixed salaries by $6,000 and adding a monthly bonus to employees' compensation equal to 8% of sales. Calculate the amount of monthly revenue, under this proposed plan, to achieve breakeven NOI.

F. Using the proposed compensation change identified in part D, calculate the amount of monthly revenue needed to achieve monthly NOI of $12,000