Hilton ch 7-10 select solutions PDF

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Select Solutions to Chapter 7

7 1 4 Ea s t Compa ny , whi c hi shi ghl ya ut oma t e d, wi l l ha v eac os t s t r uc t ur edomi na t e dby fix e dc os t s .We s tCompa n y ' sc os ts t r uc t ur ewi l li nc l udeal a r ge rpr opor t i onof v a r i a bl ec os t st ha nEa s t Compa n y ' sc os t s t r uc t ur e . Afir m' sope r a t i ngl e v e r a gef a c t or ,a tapa r t i c ul a rs a l e sv o l ume ,i sde fine da s i t st ot a lc ont r i but i onma r gi ndi v i de db yi t sne ti nc ome .Si nc eEa s tCompa n yha s pr opor t i ona t e l yhi ghe rfix e dc os t s ,i twi l lha v eapr opor t i ona t e l yhi ghe rt ot a l c ont r i but i onma r gi n.The r e f or e ,Ea s tCompa ny ' sope r a t i ngl e v e r a gef a c t orwi l lb e hi ghe r . 7 1 5 Whe ns a l e sv ol umei nc r e a s e s , Compa n yXwi l l ha v eahi ghe rpe r c e nt a gei nc r e a s e i npr ofitt ha nCompa n yY .Compa nyX' shi ghe rpr opor t i ono ffix e dc os t sgi v e st he fir m ahi ghe rope r a t i ngl e v e r a gef a c t o r .Thec ompa n y ' spe r c e nt a gei nc r e a s ei n pr ofitc a nbef o undbymul t i pl y i ngt hepe r c e nt a gei nc r e a s ei ns a l e sv ol umebyt he fir m' sope r a t i ngl e v e r a gef a c t o r . 7 1 6 Thes a l e smi xofamul t i pr oduc tor ga ni z a t i oni st h er e l a t i v epr opor t i onofs a l e sof i t spr oduc t s . Thewe i ght e da v e r a geuni tc ont r i but i onma r gi ni st h ea v e r a geoft heu ni t c ont r i but i on ma r gi ns f o r a fir m' ss e v e r a lpr oduc t s ,wi t he a c h pr oduc t ' s c ont r i but i onma r gi nwe i ght e db yt her e l a t i v ep r opor t i onof t ha t pr oduc t ' ss a l e s . 7 1 7 Thec a rr e nt a la ge nc y ' ss a l e smi xi st h er e l a t i v epr opor t i ono fi t sr e nt a lbus i ne s s a s s oc i a t e dwi t he a c hoft het hr e et y pe sofa ut o mobi l e s :s ubc ompa c t ,c ompa c t , a ndf u l l s i z e .I namul t i pr oduc tCVPa na l y s i s ,t hes a l e smi xi sa s s ume dt obe c ons t a nt o v e rt h er e l e v a ntr a ngeof a c t i v i t y . 7 1 8 Cos t v ol ume pr ofita na l y s i ss howst hee ffe c to npr ofito fc h a nge si ne x pe ns e s , s a l e sp r i c e s ,a nds a l e smi x . Ac ha ngei nt hehot e l ' sr oom r a t e( pr i c e )wi l l c ha nge t hehot e l ' suni tc ont r i but i onma r gi n. Thi sc ont r i but i onma r gi nc ha ngewi l l a l t e rt he r e l a t i ons hi pbe t we e nv ol umea ndpr ofit . 7 2 1 Thes t a t e me ntma k e st hr e ea s s e r t i ons ,butonl yt woo ft h e ma r et r ue .Thust he s t a t e me nti sf a l s e .A c ompa n ywi t ha na d v a nc e dma nuf a c t ur i nge nv i r onme nt t y pi c a l l ywi l l ha v eal a r ge rp r opor t i onoffix e dc os t si ni t sc os ts t r uc t ur e . Thi swi l l r e s ul ti nahi ghe rbr e a k e v e npoi nta ndgr e a t e rope r a t i ngl e v e r a ge .Ho we v e r ,t he fir m' shi ghe rbr e a k e v e npoi nt wi l l r e s ul t i nar e duc e ds a f e t yma r gi n. 7 2 2 Ac t i v i t y ba s e dc o s t i ng( ABC)r e s ul t si nar i c he rd e s c r i pt i onofa nor ga ni z a t i on' s c os tb e h a v i ora n dCVPr e l a t i ons hi ps .Cos t st ha ta r efix e dwi t hr e s pe c tt os a l e s v ol umema yn otbefi x e dwi t hr e s pe c tt oo t he ri mpor t a ntc os tdr i v e r s .AnABC s y s t e mr e c ogni z e st h e s en onv ol umec os tdr i v e r s ,whe r e a sat r a di t i ona lc o s t i ng s y s t e mdoe snot . EXERCI SE7 2 4( 2 5MI NUTES) Sa l e s

Va r i a bl e

T ot a l Cont r i but i on

Fi x e d

Ne t

Br e a k Ev e n Sa l e s

1 2 3 4

Re v e nue $ 3 6 0 , 0 0 0 5 5 , 0 0 0 3 2 0 , 0 0 0c 1 6 0 , 0 0 0

Ex pe ns e s $ 1 2 0 , 0 0 0 1 1 , 0 0 0 8 0 , 0 0 0 1 3 0 , 0 0 0

Ma r gi n $ 2 4 0 , 0 0 0 4 4 , 0 0 0 2 4 0 , 0 0 0 3 0 , 0 0 0

Ex pe ns e s I nc ome Re v e nue $ 9 0 , 0 0 0 $ 1 5 0 , 0 0 0 $ 1 3 5 , 0 0 0a b 2 5 , 0 0 0 1 9 , 0 0 0 3 1 , 2 5 0 6 0 , 0 0 0 1 8 0 , 0 0 0 8 0 , 0 0 0 d 0 - 1 6 0 , 0 0 0 3 0 , 0 0 0

Ex pl a na t o r yn ot e sf ors e l e c t e di t e ms : $ 1 3 5 , 0 0 0=$ 9 0 , 0 0 0¸ ( 2 / 3 ) , whe r e2 / 3i st hec ont r i but i onma r gi nr a t i o.

a

b

$ 3 1 , 2 5 0=$ 2 5 , 0 0 0 / . 8 0 , whe r e. 8 0i st hec ont r i but i onma r gi nr a t i o.

c

Br e a k e v e ns a l e sr e v e nue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F i x e de x p e ns e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Va r i a bl ee x pe ns e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 8 0 , 0 0 0 6 0 , 0 0 0 $ 2 0 , 0 0 0

The r e f or e , v a r i a bl ee x pe ns e sa r e2 5pe r c e ntof s a l e sr e v e nue . Whe nv a r i a bl ee x pe ns e sa mountt o$ 8 0 , 0 0 0 , s a l e sr e v e nuei s$ 3 2 0 , 0 0 0 . d

$ 1 6 0 , 0 0 0i st hebr e a k e v e ns a l e sr e v e nue , s ofix e de x pe ns e smus t bee qua l t ot he c ont r i but i onma r gi nof $ 3 0 , 0 0 0a ndpr ofit mus t bez e r o. EXERCI SE7 2 6( 2 5MI NUTES) 1 .

Pr ofit v o l umegr a ph:

Dol l a r spe ry e a r $ 3 0 0 , 0 0 0

$ 2 0 0 , 0 0 0

$ 1 0 0 , 0 0 0 Br e a k e v e npoi nt : 2 0 , 0 0 0t i c k e t s 0

$ ( 1 0 0 , 0 0 0 )

 5 , 0 0 0

1 0 , 0 0 0

1 5 , 0 0 0

2 0 , 0 0 0

Los s a r e a

$ ( 2 0 0 , 0 0 0 ) Annua l fix e d e x pe ns e s $ ( 3 0 0 , 0 0 0 ) $ ( 3 6 0 , 0 0 0 )

Pr ofit a r e a 2 5 , 0 0 0

Ti c k e t ss ol d pe ry e a r

EXERCI SE7 2 6( CONTI NUED) 2 . Sa f e t yma r gi n: Budge t e ds a l e sr e v e nue ( 1 0ga me s 6 , 0 0 0s e a t s . 4 5f u l l $ 2 0 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Br e a k e v e ns a l e sr e v e nue ( 2 0 , 0 0 0t i c k e t s $ 2 0 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sa f e t yma r gi n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 5 4 0 , 0 0 0 4 0 0 , 0 0 0 $ 1 4 0 , 0 0 0

3 . Le tPde not et hebr e a k e v e nt i c k e tpr i c e ,a s s umi nga1 0 ga mes e a s ona nd4 0pe r c e nt a t t e nda nc e: ( 1 0 ) ( 6 , 0 0 0 ) ( . 4 0 ) P–( 1 0 ) ( 6 , 0 0 0 ) ( . 4 0 ) ( $ 2 ) –$ 3 6 0 , 0 0 0 =0 2 4 , 0 0 0 P =$ 4 0 8 , 0 0 0 P =$ 1 7pe rt i c k e t

EXERCI SE7 2 8( 2 5MI NUTES) 1 .

( a )T r a di t i ona l i nc omes t a t e me nt : PACIFIC RIM PUBLICATIONS, INC. INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 20XX Sa l e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Le s s : Cos t of goodss ol d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gr os sma r gi n. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Le s s : Ope r a t i nge x pe ns e s: Se l l i nge x pe ns e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Admi ni s t r a t i v ee x pe ns e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ne t i nc ome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1 , 0 0 0 , 0 0 0 7 5 0 , 0 0 0 $2 5 0 , 0 0 0 $ 7 5 , 0 0 0 7 5 , 0 0 0

1 5 0 , 0 0 0 $1 0 0 , 0 0 0

( b )Cont r i but i oni nc o mes t a t e me nt : PACIFIC RIM PUBLICATIONS, INC. INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 20XX Sa l e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Le s s : Va r i a bl ee x pe ns e s : Va r i a bl ema nuf a c t ur i ng. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Va r i a bl es e l l i ng. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Va r i a bl ea dmi n i s t r a t i v e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cont r i but i onma r gi n. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Le s s :F i x e de x p e ns e s: F i x e dma nuf a c t ur i ng. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F i x e ds e l l i ng. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F i x e da dmi ni s t r a t i v e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ne t i nc ome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1 , 0 0 0 , 0 0 0 $ 5 0 0 , 0 0 0 5 0 , 0 0 0 1 5 , 0 0 0

$2 5 0 , 0 0 0 2 5 , 0 0 0 6 0 , 0 0 0

5 6 5 , 0 0 0 $4 3 5 , 0 0 0

3 3 5 , 0 0 0 $1 0 0 , 0 0 0

c o n t r i b u t i o nma r g i n n e t i n c o me $ 4 3 5 , 0 0 0  4 . 3 5 $ 1 0 0 , 0 0 0

e r a t i n gl e v e r a g ef a c t o r ( a t $ 1 , 0 0 0 , 0 0 0s a l e s l e v e l )  2 . Op

EXERCI SE7 2 8( CONTI NUED) 3 .

p ercentageincrease  operating  Percentageincreasein etincome    insalesrevnue  levragefactor =1 2 % 4 . 3 5 =5 2 . 2 % 4 . Mo s tope r a t i ngma na ge r spr e f e rt hec ont r i but i oni nc omes t a t e me n tf o ra ns we r i ngt hi s t y peo fque s t i on.Thec ont r i but i onf or ma th i ghl i ght st hec ont r i but i onma r gi na nd s e pa r a t e sfix e da ndv a r i a bl ee x pe ns e s . PROBLEM7 3 4( 3 0MI NUTES) 1 . Br e a k e v e npoi nt i ns a l e sdol l a r s , us i ngt hec ont r i but i onma r gi nr a t i o: fi x e e d x p e n s e s Br e a ke v e np o i n t c o n t r i b u t i o nma r g i nr a t i o 7 5 6 , 0 0 0 $ 5 4 0 , 0 0 0 $ 2 1 6 , 0 0 0 $     . 4 $ 3 0 $ 1 2 $ 6 $ 3 0 $ 1 , 8 9 0 , 0 0 0

2 . T a r ge t ne t i nc ome , us i ngc ont r i but i onma r gi na ppr oa c h: t fi x e x d p e n s e s a r g e t n e t i n c o m S a l e s u n i t s r e q u i r e d t oe a r n i n c o me o f $ 5 4 0 , 0 0 0 u n i t c o n t r i b u t i o n ma r g i n $ 1 , 2 9 6 , 0 0 0 $ 7 5 6 , 0 0 0 5 4 0 , 0 0 0 $    $ $ 1 2 $ 3 0 1 2 $ 6 1 0 8 , 0 0 0 u n i t s

3 . Ne wuni t v a r i a bl ema nuf a c t u r i ngc os t =$ 1 2 1 1 0 %

=$ 1 3 . 2 0 Br e a k e v e npoi nt i ns a l e sdol l a r s : $ 7 5 6 , 0 0 0 $ 7 5 6 , 0 0 0  $ 3 0 . 0 0 $ 1 3 . 2 0 $ 6 . 0 0 . 3 6 $ 3 0 $ 2 , 1 0 0 , 0 0 0

B r e a ke v e np o i n t

PROBLEM7 3 4( CONTI NUED) 4 . Le t Pde not et hes e l l i ngp r i c et ha t wi l l y i e l dt hes a mec ont r i but i onma r gi nr a t i o:  $  $  $ $ 3 0 . 0 0 1 2 . 0 0 6 . 0 0 1 3 . 2 0 6 . 0 0 P $  $ 3 0 . 0 0 P 1 9 . 2 0 P $ . 4 P . 4 P P $ 1 9 . 2 0 P $ 1 9 . 2 0 . 6 P$ 1 9 . 2 0 / . 6 P $ 3 2 . 0 0

Che c k : Ne wc ont r i but i onma r gi nr a t i oi s: $ 3 2 . 0 0 $ 1 3 . 2 0 $ 6 . 0 0 . 4 $ 3 2 . 0 0

PROBLEM7 3 6( 3 0MI NUTES) 1 . Br e a k e v e npoi nt i nuni t s , us i ngt hee qua t i ona ppr oa c h: $ 2 4 X–( $ 1 5+$ 3 ) X–$ 1 , 8 0 0 , 0 0 0= 0 $ 6 X =$ 1 , 8 0 0 , 0 0 0 X =

$ 1 , 8 0 0 , 0 0 0 $ 6

=3 0 0 , 0 0 0uni t s 2 .

Ne wpr oj e c t e ds a l e sv ol ume = 4 0 0 , 0 0 0 1 1 0 % =4 4 0 , 0 0 0uni t s Ne t i nc ome = ( 4 4 0 , 0 0 0 ) ( $ 2 4–$ 1 8 )–$ 1 , 8 0 0 , 0 0 0 =( 4 4 0 , 0 0 0 ) ( $ 6 ) –$ 1 , 8 0 0 , 0 0 0 =$ 2 , 6 4 0 , 0 0 0–$ 1 , 8 0 0 , 0 0 0=$ 8 4 0 , 0 0 0

3 . T a r ge t ne t i nc ome=$ 6 0 0 , 0 0 0( f r omor i gi na l pr obl e mda t a ) Ne wdi s kpur c ha s epr i c e=$ 1 5 1 3 0 %=$ 1 9 . 5 0 Vol umeof s a l e sdol l a r sr e qui r e d: Vol umeo fs a l e sdol l a r sr e qui r e d

fi x e e d x p e n s e a r g e t n p e r t o fi t s t c o n t r i b u t i o nma r g i nr a t i o $ 1 , 8 0 0 , 0 0 0 $ 6 0 0 , 0 0 0 $ 2 , 4 0 0 , 0 0 0   $ 2 4 $ 1 9 . 5 0 $ 3 . 0 6 2 5 $ 2 4 $ 3 8 , 4 0 0 , 0 0 0 

PROBLEM7 3 6( CONTI NUED) 4 . Le t Pde not et hes e l l i ngp r i c et ha t wi l l y i e l dt hes a mec ont r i but i onma r gi nr a t i o:  $  $  $ $ 2 4 1 5 3 1 9 . 5 0 3 P $  $ 2 4 P 2 2 . 5 0 P $ . 2 5 P P  P $ . 2 5 2 2 . 5 0 P $ 2 2 . 5 0 . 7 5 P $ 2 2 . 5 0 / . 7 5 P $ 3 0

Che c k : Ne wc ont r i but i onma r gi nr a t i oi s: $ 3 0 $ 2 2 . 5 0 2 5 . $ 3 0

5. The electronic version of the Solutions Manual “BUILD A SPREADSHEET SOLUTIONS” is available on your Instructors CD and on the Hilton, 8e website: www.mhhe.com/hilton8e. PROBLEM 7-37 (30 MINUTES) 1.

Unit contribution margin: Sales price………………………………… Less variable costs: Sales commissions ($32 x 5%)…… System variable costs……………… Unit contribution margin………………..

$32.00 $ 1.60 8.00

9.60 $22.40

Break-even point = fixed costs ÷ unit contribution margin = $1,971,200 ÷ $22.40 = 88,000 units 2.

Model A is more profitable when sales and production average 184,000 units.

Sales revenue (184,000 units x $32.00)……... Less variable costs: Sales commissions ($5,888,000 x 5%)… System variable costs:…………………… 184,000 units x $8.00…………………. 184,000 units x $6.40…………………. Total variable costs……………………….. Contribution margin…………………………...

Model A

Model B

$5,888,000

$5,888,000

$ 294,400

$ 294,400

1,472,000 $1,766,400 $4,121,600

1,177,600 $1,472,000 $4,416,000

Less: Annual fixed costs…………………….. Net income……………………………………… 3.

1,971,200 $2,150,400

2,227,200 $2,188,800

Annual fixed costs will increase by $180,000 ($900,000 ÷ 5 years) because of straightline depreciation associated with the new equipment, to $2,407,200 ($2,227,200 + $180,000). The unit contribution margin is $24 ($4,416,000 ÷ 184,000 units). Thus: Required sales = (fixed costs + target net profit) ÷ unit contribution margin = ($2,407,200 + $1,912,800) ÷ $24 = 180,000 units

4.

Let X = volume level at which annual total costs are equal $8.00X + $1,971,200 = $6.40X + $2,227,200 $1.60X = $256,000 X = 160,000 units

PROBLEM7 3 8( 2 5MI NUTES) 1 .

Cl os i ngof ma l l s t o r e: Los sof c ont r i but i onma r gi na t Ma l l St o r e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ ( 1 0 8 , 0 0 0 ) Sa v i ngsof fix e dc o s ta t Ma l l St or e( 7 5 %) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 0 , 0 0 0 Los sof c ont r i but i onma r gi na t Do wnt o wnSt or e( 1 0 %) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 1 4 , 4 0 0 ) T ot a l de c r e a s ei nope r a t i ngi nc ome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ ( 3 2 , 4 0 0 )

2 .

Pr omot i ona l c a mpa i gn: I nc r e a s ei nc ont r i but i onma r gi n( 1 0 %) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1 0 , 8 0 0 I nc r e a s ei nmont hl ypr omot i ona l e x pe ns e s( $ 1 8 0 , 0 0 0 / 1 2 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . .( 1 5 , 0 0 0 ) De c r e a s ei nope r a t i ngi nc ome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ ( 4 , 2 0 0 )

3 .

El i mi na t i onof i t e mss ol da t t he i rv a r i a bl ec o s t : Wec a nr e s t a t et heNo v e mbe r2 0 x 4da t af o rt heMa l l St or ea sf o l l ows : Ma l l St or e I t e msSol da t The i rVa r i a bl e Cos t Ot he rI t e ms Sa l e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1 8 0 , 0 0 0 * $ 1 8 0 , 0 0 0 * Le s s : v a r i a bl ee x pe ns e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 8 0 , 0 0 0 7 2 , 0 0 0 Cont r i but i onma r gi n. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0 $ 1 0 8 , 0 0 0 I f t hei t e mss ol da t t he i rv a r i a bl ec os t a r ee l i mi na t e d, weha v e: De c r e a s ei nc ont r i but i onma r gi nono t he ri t e ms( 2 0 %) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ ( 2 1 , 6 0 0 ) De c r e a s ei nfix e de x pe ns e s( 1 5 %) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 8 , 0 0 0 De c r e a s ei nope r a t i ngi nc ome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $( 3 , 6 0 0 ) * $ 1 8 0 , 0 0 0i soneha l f oft heMa l l St or e ' sdol l a rs a l e sf o rNo v e mbe r2 0 x 4 .

4. The electronic version of the Solutions Manual “BUILD A SPREADSHEET SOLUTIONS” is available on your Instructors CD and on the Hilton, 8e website: www.mhhe.com/hilton8e. PROBLEM 7-39 (40 MINUTES) 1.

Sales mix refers to the relative proportion of each product sold when a company sells more than one product.

2.

(a)

Yes. Plan A sales are expected to total 65,000 units (19,500 + 45,500), which compares favorably against current sales of 60,000 units.

(b)

Yes. Sales personnel earn a commission based on gross dollar sales. As the following figures show, Cold King sales will comprise a greater proportion of total sales under Plan A. This is not surprising in light of the fact that Cold King has a higher selling price than Mister Ice Cream ($43 vs. $37). Current

Mister Ice Cream.......... Cold King..................... Total........................ (c)

Plan A

Units

Sales Mix

Units

Sales Mix

21,000 39,000 60,000

35% 65% 100%

19,500 45,500 65,000

30% 70% 100%

Yes. Commissions will total $267,800 ($2,678,000 x 10%), which compares favorably against the current flat salaries of $200,000. Mister Ice Cream sales: 19,500 units x $37............... Cold King sales: 45,500 units x $43.......................... Total sales.............................................................

$ 721,500 1,956,500 $2,678,000

PROBLEM 7-39 (CONTINUED) (d)

No. The company would be less profitable under the new plan.

Sales revenue: Mister Ice Cream: 21,000 units x $37; 19,500 units x $37................ Cold King: 39,000 units x $43; 45,500 units x $43........................... Total revenue................................................................................ Less variable cost: Mister Ice Cream: 21,000 units x $20.50; 19,500 units x $20.50...... Cold King: 39,000 units x $32.50; 45,500 units x $32.50................. Sales commissions (10% of sales revenue)....................................... Total variable cost........................................................................ Contribution margin................................................................................. Less fixed cost (salaries)................