Question: Part II Problems Problem 1 Cost Behavior and Breakeven Analysis 2 0 points MSM Company sells clothing for young adults. The firm has normal monthly

Part II Problems

Problem

1

Cost Behavior and Breakeven Analysis

20

points

MSM Company sells clothing for young adults. The firm has normal monthly fixed costs of $

120, 000 (

48, 000

of this amount is fixed salaries

) .

The firm's variable cost ratio averages

55 % .

The firm operates

3

stores in the mid Atlantic region.

What is the monthly level of sales dollars needed to breakeven?

What is the monthly level of sales dollars needed to earn a net operating income

(

NOI

)

of $

20, 000

monthly?

What is the monthly level of sales dollars needed to earn a net operating income

(

NOI

)

8 %

of sales?

The firm is considering reducing monthly fixed salaries

(

currently $

48, 000)

and using a combination salary and commission employee compensation plan. The reduction in fixed salaries would equal $

10, 000

monthly and be replaced with a

3 %

of gross sales commission payment. The

3 %

would be shared by all fixed salary employees.

.

Calculate the new breakeven point in monthly sales dollars.

.

Calculate the new level of monthly sales dollars needed to earn an operating profit of $

20, 000

monthly.

Part II Problems Problem 1 Cost Behavior and Breakeven Analysis 20

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