# Zimmerman Company records the following costs associated with the production and sale of a steel slingshot: Selling expenses: Fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Chapter 21, Practice Exercises #53

Zimmerman Company records the following costs associated with the production and sale of a steel slingshot:

Selling expenses:

Fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$20,000

Variable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$0.50 per unit sold

Fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .\$4,500

Variable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$0.25 per unit sold

Manufacturing costs:

Fixed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$35,000

Variable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .\$7.50 per unit produced

Required:

Assume that in 2012 the beginning and ending inventories were the same. Also assume that 2012 sales were 25,000 units at \$11 per slingshot.

1. Prepare a contribution margin income statement.

2. Determine the break-even point in sales dollars.

3. Interpretive Question: Zimmerman believes that sales volume could be improved 20% if an additional commission of \$0.50 per unit were paid to the salespeople. Zimmerman also believes, however, that the same percentage increase could be achieved through an increase of \$3,000 in annual advertising expense. Which action, if either, should Zimmerman take? Why?

Contribution Margin
Contribution 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...

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