Carbex, Inc., produces cutlery sets out of high-quality wood and steel. The comp
ID: 2476372 • Letter: C
Question
Carbex, Inc., produces cutlery sets out of high-quality wood and steel. The company makes a standard cutlery set and a deluxe set and sells them to retail department stores throughout the country. The standard set sells for $76, and the deluxe set sells for $91. The variable expenses associated with each set are given below. Standard Deluxe Production costs $ 23.00 $ 38.00 Sales commissions (23% of sales price) $ 17.48 $ 20.93 The company’s fixed expenses each month are: Advertising $ 113,000 Depreciation $ 24,100 Administrative $ 67,000 Salespersons are paid on a commission basis to encourage them to be aggressive in their sales efforts. Mary Parsons, 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: Standard Deluxe Total April 4,800 2,800 7,600 May 1,800 5,800 7,600 Required: 1-a. Prepare contribution format income statements for April. Round "Total percent" answers to 1 decimal place (i.e .1234 should be entered as 12.3). 1-b. Prepare contribution format income statements for May. Round "Total percent" answers to 1 decimal place (i.e .1234 should be entered as 12.3). 3-a. Compute the break-even point in dollar sales for April. (Round intermediate percentage calculations to 1 decimal place.) 3-b. Whether the break-even point would be higher or lower with May's sales mix than with April’s sales mix. Higher Lower
Explanation / Answer
1-a. Contribution Format Income Statement(April):
1-b. Contribution Format Income Statement(May):
3-a. Break even point in dollar sales for April:
3-b. Break even point in dollar sales for April:
Break even point in May will be higher than that in April by $58315
Standard Set Deluxe Set Total Units 4800 2800 $ $ $ Sales 364800 254800 919600 Less: Variable cost of production -110400 -106400 -216800 Less: Variable Sales commissions -83904 -58604 -142508 Contribution 170496 89796 560292 Less: Fixed Cost -204100 Net Income 356192