Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please provide complete answer with full detail and solve all requirements please thanks Q2. HNH Tech, Inc. is studying the addition of a new valve

image text in transcribed

image text in transcribed

please provide complete answer with full detail and solve all requirements please thanks

Q2. HNH Tech, Inc. is studying the addition of a new valve to its product line. The valve would be used by manufacturers of pneumatic equipment. The company anticipates starting with a relatively low sales volume and then boosting demand over the next several years. A new salesperson must be hired because Page 2 of 5 HNH Tech's current sales force is working at capacity. Two compensation plans are under consideration: Plan A: An annual salary of Rs.33.000 plus a 10% commission based on gross dollar sales. Plan B: An annual salary of Rs.99.000 and no commission. HNH Tech, Inc. will purchase the valve for Rs.75 and sell it for Rs. 120. Anticipated demand during the first year is 6,000 units. (In the following requirements, ignore income taxes.) Required: 1. Compute HNH Tech's break-even point for Plan A and Plan B. 2. What is meant by the term operating leverage? 3. Analyze the cost structures of both plans at the anticipated demand of 6,000 units. Which of the two plans is more highly leveraged? Why? 4. Assume that a general economic downtum occurred during year 2, with product demand falling from 6,000 to 5,000 units. Determine the percentage decrease in company net income if HNH Tech had adopted Plan A. 5. Repeat requirement (4) for Plan B. Compare Plan A and Plan B, and explain a major factor that underlies any resulting differences. 6. Briefly discuss the likely profitability impact of an economic recession for highly automated manufacturers. What can you say about the risk associated with these firms

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Accounting Wileyplus Blackboard Student Package

Authors: Charles E. Davis, Elizabeth Davis

3rd Edition

1119342511, 978-1119342519

More Books

Students also viewed these Accounting questions