Question-2:

Huzaifas toys produces lucrative toys forkids. Sales personnel are paid a substantial commission on each unit of toys sold plus small basic salary, in order to encourage them to be aggressive in their sales efforts:

	Per Unit	Monthly fixed expense
Selling Price	$40
Variable costs		Advertising	$40,000
Material costs	$17	Rent	$25,000
Sales commission	$5.5	Salaries	$130,000

Required:

1. Calculate the contribution margin ratio.
2. Calculate the monthly break-even in units sales in dollar sales. Use formula method.
3. Assume the next month management wants the company to earn a profit of $450,000. How many units will have to be sold to meet the target profit. Use equation method.
4. Assume that the company is thinking to get rid of variable sales commission entirely and increasing monthly fixed salaries by $40,000. If this change is made, what will be the new breakeven point in units sales and dollar sales. Use formula method.
5. For the coming financial year, the management has decided to boost the net operating income, as part of this decision the company will give sale commission to the sales staff based on her product sold. Assume the company has 2 different products, product 1: Sales per unit $5 and CM $3.5 per unit, Product 2: Sales per unit $7and CM per unit $2. Comment on the decision made by the management.