Question: Hello, I need help creating an informal memo given the information bellow Explain whether Mary's changes should be adopted. Why or why not? Current Break-Even
Hello,
I need help creating an informal memo given the information bellow Explain whether Mary's changes should be adopted. Why or why not?
Current Break-Even Points
Fixed Costs
Divided by
Unit Contribution Margin
=
Break-Even Points in Units
270,000
16
16,875
Mary's Proposal Break-Even point
Fixed Costs
Divided
By
Unit Contribution
Margin
=
Break-Even Points in Units
294,000
14
21,000
Given the previous calculations, if Mary's proposal is to be used the Break Even point in units will rise from sixteen thousand eight hundred seventy-five to twenty-one thousand.
Current Margin of Safety
Actual expected Sales
Minus
Break-Even Sales
=
Margin of safety
20,000
16,875
$3,125.00
Margin of Safety in Dollars
Divided By
Actual Expected Sales
Equals
The margin of Safety Ratio Rounded to the nearest full Percent
3,125
20,000
16%
Mary's Idea Margin of Safety
Actual Expected Sales
Minus
Break-Even Sales
Equals
The margin of Safety in Dollars
24,000
21,000
$3,000
The margin of Safety in Dollars
Divided By
Actual Expected Sales
Equals
The Margin of Safety Ratio Rounded to the Nearest Full Percent
3,000
24,000
13%
Given the previous calculations If Mary's idea is to be executed the margin of safety will decrease from sixteen percent to thirteen percent.
Current Cost-Volume-Profit Income Statement
Sales 20,000 x $40
$800,000
Variable Expenses
$480,000
Contribution Margin
$320,000
Fixed Expenses
$270,000
Net Income
$50,000
Cost-Volume-Profit Income Statement after Mary's idea
Sales 24,000 x $38
912,000
Variable Expenses
$576,000
Contribution Margin
$336,000
Fixed Expenses
$294,000
Net Income
$42,000
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