Cost Behavior and Breakeven Analysis

MSM Company sells clothing for young adults. The firm has normal monthly fixed costs of $90,000 ($38,000 of this amount is fixed salaries). The firms variable cost ratio averages 60%. The firm operates 3 stores in the mid Atlantic region.

1. MSM Company management believes that monthly sales should average approximately $375,000 during 2014. Prepare a contribution type income statement using (1) the current cost structure model ( the model that includes salaries but no commissions) and (2) a second contribution type income statement using the proposed (fixed salary plus commission) model.

2. From the employees perspective, what level of monthly sales dollars must MSM achieve so that their monthly compensation under the combination fixed salary/commission model is equal to the current monthly fixed salary amount (currently $38,000).