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Management Accounting and Control Assignment.

NAME: Swapnil Rele


ROLL # 56
EMBA FALL 18-20

Q1. How has the breakeven point in the number of sales tickets (number of customer orders
written) and breakeven in sales dollars changed from 2003, to 2004, and to 2006? How has the
margin of safety changed? What caused the changes?

Ans. Particulars 2003 2004 2006


Sales Value 8583 8102 10711
Less : Cost of Goods Sold (4326) (4132) (5570)
Contribution Before Commission 4257 3970 5141
Less : Commission @ 5% of sales (429) (405) (536)
Contribution After Commission 3828 3565 4605
Less : Fixed Costs -
Salaries 2021 2081 3215
Advertisement 254 250 257
Administrative Exp 418 425 435
Rent 420 420 840
Depreciation 84 84 142
Misc. Exp. 53 93 122
Net Income 578 212 (406)

Number of Customer Orders is 5341 5316 6897


Therefore Contribution/Order is 0.716692 0.670598 0.667747
Now Total Fixed Cost is 3250 3353 5011
Therefore Breakeven point in 4535 5000 7504
number of Sales Tickets is

BEP (value) 7287.315 7620.412 11654.197

Margin of Safety 1295.685 481.588 (943.197)


Q2. One idea that the consultant had was to reduce prices to bring in more customers. If average
prices were reduced 10% and the number of sales tickets (unit sales) increased to 7500, would the
company's income be increased? With prices reduced, what would be the new breakeven point in
sales tickets and sales dollars?

Ans. If consultant plans to use his idea, then with cost figures of 2006, the Income statement will
look as like:

Year 2006
Sales Value (reduced sales per order* 7500) 10483
Less : Cost of Goods Sold 6057
Contribution Before Commission 4426
less : Commission @ 5% of sales 524
Contribution After Commission 3902
Less : Fixed Costs 5011
Net Income (1109)
Contribution Per order 0.52
BEP(units) 9633
BEP(value) 13464

Q3. Another idea that Gretchen had was to eliminate sales commission. Hallstead's was the only
jewellery store in the city that paid sales commission, and although both grandfather and father
insisted that commissions were one of the reasons for their success, Gretchen had her doubts. How
would the elimination of sales commissions affect the breakeven volume?

Ans. If the sales commission were not paid for all the three years, the income statement is as below
YEAR 2003 2004 2006
Sales Value 8583 8102 10711
Less : Cost of Goods Sold 4326 4132 5570
Contribution 4257 3970 5141
Less : Fixed Costs -
Salaries 2021 2081 3215
Advertisement 254 250 257
Administrative Exp 418 425 435
Rent 420 420 840
Depreciation 84 84 142
Misc. Exp. 53 93 122
Net Income 1007 617 130

Number of Customer Orders is 5341 5316 6897


Therefore Contribution/Order is 0.8 0.75 0.745
Now Total Fixed Cost is 3250 3353 5011

BEP in Sales Tickets (units) 4078 4490 6723

BEP in Sales Tickets (Value) 6553 6843 10440

Q4. Michaela felt that a bigger store could benefit from a greater advertising and suggested that
they increase advertising by $200000. How would this affect the breakeven point. Would you
recommend that the sisters try this?

Ans. If they increase their advertising, then for year 2006, their Income statement would be like
below
Ans. YEAR 2006
Sales Value 10711
Less : Cost of Goods Sold 5570
Contribution Before Commission 5141
less : Commission @ 5% of sales 536
Contribution After Commission 4605
Less : Fixed Costs -
Salaries 3215
Advertisement 457
Administrative Exp 435
Rent 840
Depreciation 142
Misc. Exp. 122
Net Income (606)

Number of Customer Orders is 6897


Therefore Contribution/Order is 0.667746846
Now Total Fixed Cost is 5211

BEP in Sales Tickets (units) 7804

BEP in Sales Tickets (Value) 12119.341

If we increase the advertising, the breakeven sales and breakeven order of the company will rise
even higher.

Q5. How much would the average sales ticket have to increase to breakeven if the fixed cost
remained the same in 2007 as it was in 2006?

Ans. In order to Breakeven, the total contribution of the company must be equal to its Fixed cost.