Part II Problems

Problem $1$ Cost Behavior and Breakeven Analysis $20$ points

MSM Company sells clothing for young adults. The firm has normal monthly fixed costs of $$120,000($ $$48,000$ of this amount is fixed salaries$).$ The firm's variable cost ratio averages $55\%.$ The firm operates $3$ stores in the mid Atlantic region.

What is the monthly level of sales dollars needed to breakeven?

What is the monthly level of sales dollars needed to earn a net operating income $($NOI$)$ of $$20,000$ monthly?

What is the monthly level of sales dollars needed to earn a net operating income $($NOI$)$ of $8\%$ of sales?

The firm is considering reducing monthly fixed salaries $($currently $$48,000)$ and using a combination salary and commission employee compensation plan. The reduction in fixed salaries would equal $$10,000$ monthly and be replaced with a $3\%$ of gross sales commission payment. The $3\%$ would be shared by all fixed salary employees.

a$.$ Calculate the new breakeven point in monthly sales dollars.

b$.$ Calculate the new level of monthly sales dollars needed to earn an operating profit of $$20,000$ monthly.