Marston Corporation

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Solution Guide: Please reword:

Case 6-32
1.The contribution format income statements (in thousands of dollars) for the three alternatives are:

| 18% Commission| 20% Commission| Own Sales Force|
Sales| $30,000| | 100| %| $30,000| | 100| %| $30,000| | 100| %| Variable expenses:| | | | | | | | | | | | |
Variable cost of goods sold| 17,400| | | | 17,400| | | | 17,400| | | | Commissions|    5,400| | | |    6,000| | | |    3,000| | | | Total variable expense|  22,800| |  76| %|  23,400| |  78| %|  20,400| |  68| %| Contribution margin|    7,200| |  24| %|    6,600| |  22| %|    9,600| |  32| %| Fixed expenses:| | | | | | | | | | | | |

Fixed cost of goods sold| 2,800| | | | 2,800| | | | 2,800| | | | Fixed advertising expense| 800| | | | 800| | | | 1,300| *| | | Fixed marketing staff expense| | | | | | | | | 1,300| **| | | Fixed administrative expense|   3,200| | | |    3,200| | | |    3,200| | | | Total fixed expenses|   6,800| | | |    6,800| | | |    8,600| | | | Net operating income| $   400| | | | ($    200)| | | | $ 1,000| | | |

*| $800,000 + $500,000 = $1,300,000|
**| $700,000 + $400,000 + $200,000 = $1,300,000|

2.Given the data above, the break-even points can be determined using total fixed expenses and the CM ratios as follows:

| a.| |

| b.| |

| c.| |

3.| |

4.| |

The two net operating incomes are equal when:

0.32X – $8,600,000| =| 0.22X – $6,800,000|
0.10X| =| $1,800,000|
X| =| $1,800,000 ÷ 0.10|
X| =| $18,000,000|

Thus, at a sales level of $18,000,000 either plan will yield the same net operating income. This is verified below (in thousands of dollars):

| 20% Commission| | Own Sales Force|
Sales|...
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