Apply CVP analysis to a scenario and reflect on how changes in cost behavior impact a companys profitability.

SCENARIO

You are a management accountant for Ice Master Equipment Inc. The company manufactures a variety of snowblowers. Current cost and sales information for the Ice Master 900 is as follows:

Selling price $1,000

Variable cost ratio 59%

Sales units 520

Fixed Costs $240,000

To encourage the sales force to focus on the Ice Master 900 and expand sales, the president is considering eliminating the base salaries for its sales force in favor of a 10% commission payout based on sales. The new plan would affect the following:

Selling price: no change

Variable cost ratio increase: 10% of sales

Fixed costs: eliminate $100,000 of base salaries

The president of Ice Master Equipment Inc. believes that the new commission plan, which is favored by the sales force, would actually increase sales 15%.

You have been asked to prepare two contribution income statements and break-even analysis based on:

1) Current scenario

2) Scenario if the sales commission is implemented and sales increase 15%

Using Excel, create a contribution margin income statement and break-even analysis.