Breakeven point, cost structure, operating lever

A tire distributor plans to introduce a new line of tires for highway trucks. A new salesperson would have to be hired, so two compensation plans are being studied:

A: Base salary of $10,000 per month plus a commission of $100 per unit sold.

B: Fixed monthly salary of $35,000 without sales commissions.

The sales price per tire is $6,000 with a purchase cost of $4,600 each unit. The monthly planned demand is 100 units. Other fixed costs of the business are $12,000 a month.

It is requested:

1. Determine the break-even point for plan A and plan B.

2. Analyze the cost structure of the two plans by preparing an income statement for each that shows the percentage of variable and fixed costs that they will have as a percentage of the sale. Suppose all 100 units are sold.

3. Calculate the operating leverage you will have with each plan.

4. At what level of sales would it be indifferent to choose either plan?

5. With the information collected in the previous section, summarize your findings as shown below: less than ________units plan A is suitable, from _____units plan B is suitable.

6. Calculate the total cost of the two plans for a sales level of 40 units. Which plan is best?