Jensen Associates provides marketing services for a number of small manufacturing firms. Jensen receives a commission of 10 percent of sales. Operating costs are as follows:

Unit-level costs	$ 0.04 per sales dollar
Sales-level costs	$ 300 per sales order
Customer-level costs	$ 900 per customer per year
Facility-level costs	$ 60,000 per year

(a) Determine the minimum order size in sales dollars for Jensen to break even on an order. $Answer

(b) Assuming an average customer places four orders per year, determine the minimum annual sales required to break even on a customer. $Answer (c) What is the average order size in (b)? $Answer (d) Assuming Jensen currently serves 100 customers, with each placing an average of four orders per year, determine the minimum annual sales required to break even. $Answer (e) What is the average order size in (d)? $Answer (f) Explain the differences in the answers to (a), (c), and (e).

In the long-run the most important costs are facility level costs.

The most important costs to cover are unit level costs.

In multiple customer firms the break-even point decreases as the number of customers increases.

Even if individual orders have a positive contribution, some customers may be unprofitable.

Jensen Associates provides marketing services for a number of small manufacturing firms. Jensen receives a commission of 10 percent of sales. Operating costs are as follows:

Unit-level costs	$ 0.04 per sales dollar
Sales-level costs	$ 300 per sales order
Customer-level costs	$ 900 per customer per year
Facility-level costs	$ 60,000 per year

(a) Determine the minimum order size in sales dollars for Jensen to break even on an order. $Answer

(b) Assuming an average customer places four orders per year, determine the minimum annual sales required to break even on a customer. $Answer (c) What is the average order size in (b)? $Answer (d) Assuming Jensen currently serves 100 customers, with each placing an average of four orders per year, determine the minimum annual sales required to break even. $Answer (e) What is the average order size in (d)? $Answer (f) Explain the differences in the answers to (a), (c), and (e).

In the long-run the most important costs are facility level costs.

The most important costs to cover are unit level costs.

In multiple customer firms the break-even point decreases as the number of customers increases.

Even if individual orders have a positive contribution, some customers may be unprofitable.