CHS 5&6 Help Sa Carbex, Inc., produces cutlery sets out of high-quality wood and
ID: 2392175 • Letter: C
Question
CHS 5&6 Help Sa Carbex, Inc., produces cutlery sets out of high-quality wood and steel. The company makes a Standard set and a Deluxe set and sells them to retail department stores throughout the country. The Standard set sells for $80, and the Deluxe set sells for $95. The variable expenses associated with each set are given below. s25.00 40.00 20.00 23.75 The company's fixed expenses each month aže: 115,000 24,700 68,000 s, the financial vice president, watches sales commissions carefully and has noted that they have risen steadily over the last year. For this reason, she was shocked to find that even though sales have increased, profits for the current month-May-are down substantially from April. Sales, in sets, for the last two months are given below 5,000 3,000 8,000 2,000 6,000 8,000 Hay 1-a. Prepare contribution format income statements for April. 1-b. Prepare contribution format income statements for May. the break-even point in dollar sales for April. 3-b. Would the break-even point in May be higher or lower than the break-even point in April? Prey 2 of 5lI Next>Explanation / Answer
1-a) Standard Deluxe Total CM Ratio Sales 400000 285000 685000 Variable expenses: Production cost 125000 120000 245000 Sales commission (25%) 100000 71250 171250 Total variable cost 225000 191250 416250 Contribution 175000 93750 268750 39.23% Fixed Costs: Advertising 115000 Depreciation 24700 Administration 68000 Total fixed costs 207700 Net operating income 61050 1-b) Standard Deluxe Total Sales 160000 570000 730000 Variable expenses: Production cost 50000 240000 290000 Sales commission (25%) 40000 142500 182500 Total variable cost 90000 382500 472500 Contribution 70000 187500 257500 35.27% Fixed Costs: Advertising 115000 Depreciation 24700 Administration 68000 Total fixed costs 207700 Net operating income 49800 3-a) BEP in $ = Fixed costs/CM ratio = 207700/(268750/685000) = $ 5,29,393 3-b) The BEP for May will be higher as the CM ratio is lower.