1

Sales 16000000
Manufacturing expenses:
variable 7200000
fixed overhead 2340000
Total Manufacturing Expense 9540000
Gross Margin. 6460000
Selling and Admin expenses
commissions to agents 2400000
fixed marketing expenses.. 120000
Fixed admin expense 1800000
Total Sellin and Admin Expense 4320000
Net operating income 2140000
Fixed interest expenses 540000
Income before income taxes 1600000
incomes taxes (30%) 480000
Net income 1120000

a)
Total Fixed Cost 4800000
Total Variable Cost 9600000
Contribution Margin 6400000
Contribution Margin Ratio 0.4
Break Even in Sales 12000000

Sales 16000000
Manufacturing expenses:
variable 7200000
fixed overhead 2340000
Total Manufacturing Expense 9540000
Gross Margin. 6460000
Selling and Admin expenses
commissions to agents 3200000
fixed marketing expenses.. 120000
Fixed admin expense 1800000
Total Sellin and Admin Expense 5120000
Net operating income 1340000
Fixed interest expenses 540000
Income before income taxes 800000
incomes taxes (30%) 240000
Net income 560000
b)
Total Fixed Cost 4800000
Total Variable Cost 10400000
Contribution Margin 5600000
Contribution Margin Ratio 0.35
Break Even in Sales 13714285.71429

Sales 16000000
Manufacturing expenses:
variable 7200000
fixed overhead 2340000
Total Manufacturing Expense 9540000
Gross Margin. 6460000
Selling and Admin expenses
commissions to agents 1200000
fixed marketing expenses.. 2520000 This includes the additional 2400000 which the company
Fixed admin expense 1725000
Total Sellin and Admin Expense 5445000
Net operating income 1015000
Fixed interest expenses 540000
Income before income taxes 475000
incomes taxes (30%) 142500
Net income 332500

c)
Total Fixed Cost 7125000
Total Variable Cost 8400000
Contribution Margin 7600000
Contribution Margin Ratio 0.475
Break Even in Sales 15000000

2
Sales before 16000000
Sale after increment of 5% 16800000
Difference 800000
To reach to the income of 1120000 the company needs to increase their sales by 800000 because as the commission will incre
 3
For this we have to use this equation
x+fc/cm = x+fc/cm x+fc/cm
x+4800000/0.35 = x+7125000/.475 x+7125000/.475

2325000
23250000/0.125 = 18600000
For 20% commision For personal sales agent
18600000 18600000
8835000 6510000
1710000 1710000
The sales should be 18600000 in order to have same income for both the situation

4
Operating Leverage
a 4
b 7
c 16.00

5
The company should contitnue with sale agents on 20% commission because in that case it will earn more profits and breakeve

Formulas for Contribution Margin

Sales less Variable Cost
Formulas for Contribution Margin Ratio
Contributioin margin divided by Sales

Formula for Breakeven in Sales

Fixed Cost divided by contribution margin ratio

References:-
http://www.myaccountingcourse.com/financial-ratios/contribution-margin
http://www.accountingtools.com/operating-leverage
http://www.accountingcoach.com/blog/break-even-point-2
00000 which the company will incur if they hire own sale persons

the commission will increase by 5 percent so sale should also increased by 5%

more profits and breakeven sales Is also lower as compred to other option so it will be easy for them to reach no loss no profit situation
o loss no profit situation