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Grass Roots Inc. has monthly fixed costs of $48,000 and a variable cost ratio of 45%. Management is considering several changes to the cost and
Grass Roots Inc. has monthly fixed costs of $48,000 and a variable cost ratio of 45%. Management is considering several changes to the cost and revenue structure and is concerned about the potential impact on breakeven point and profitability. Please assist management by answering the following questions. Be sure to show your calculations for potential full credit. a. Under the current structure what is the dollar amount of monthly breakeven revenue. b. What is the dollar amount of monthly revenue necessary to earn net operating income equal to 17% of revenue. c. What is the dollar amount of monthly net income (after tax) if revenue equals $120,000 and MSM's tax rate is 30%. d. Assume that currently monthly revenue is $140,000, monthly fixed cost equals $48,000, the variable cost ratio is 45% and the tax rate is 30%. Management is considering decreasing monthly fixed cost (salaries) by $8,000 but increasing the sales commission (paid on all sales) from 5% to 12%. This is forecasted to increase revenue by $12,000 monthly due to the increased motivation to sell.. Advise management about the pros and cons of this change. I'm looking for a very efficient yet well rounded answer - quantitative and qualitative (more than a couple of words)
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