Multiple-Level Break-Even Analysis

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

Unit-level costs $0.02 per sales dollar

Sales-level costs $100 per sales order

Customer-level costs $800 per customer per year

Facility-level costs $60,000 per year

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

(b) Assuming an average customer places five orders per year, determine the minimum annual sales required to break even on a customer.

(c) What is the average order size in (b)?

(d) Assuming Nielsen currently serves 100 customers, with each placing an average of five orders per year, determine the minimum annual sales required to break even.

(e) What is the average order size in (d)?

(f) Explain the differences in the answers to (a), (c), and (e).