Case Study 7-55

Powerful Essays
Topics: Revenue, Sales
CASE 7-55:

1. Compute Niagra Falls Sporting Goods’ estimated break-even in sales dollars for the year ending December 31, 20x2, based on the budgeted income statement prepared by the controller.
Contribution margin ratio = \$10,000,000 - \$6,000,000 - \$2,000,000 / \$10,000,000 = .20
Estimated break-even point = \$100,000 / .20 = \$500,000

2. Compute the estimated break-even point in sales dollars for the year ending December 31, 20x2, if the company employs its own sales personnel.

New fixed expenses:
Previous fixed expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$ 100,000
Full-time sales personnel salaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
Sales manager salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$ 350,000 New contribution margin ratio:
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$10,000,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000,000
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$ 4,000,000
Commissions (5%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000
Contribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$ 3,500,000

Contribution margin ratio = \$3,500,000 / \$10,000,000 = .35
Estimated break-even point = \$350,000 / .35

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