Question
Refer to the original data. Rather than purchase new equipment, the marketing manager argues that the companys marketing strategy should be changed. Rather than pay
Refer to the original data. Rather than purchase new equipment, the marketing manager argues that the companys marketing strategy should be changed. Rather than pay sales commissions, which are currently included in variable expenses, the company would pay salespersons fixed salaries and would invest heavily in advertising. The marketing manager claims this new approach would increase unit sales by 50% without any change in selling price; the companys new monthly fixed expenses would be $331,200, and its net operating income would increase by 25%. Compute the break-even point in dollar sales for the company under the new marketing strategy.
Morton Companys contribution format income statement for last month is given below: |
Sales (46,000 units $24 per unit) | $ | 1,104,000 | |
Variable expenses | 772,800 | ||
Contribution margin | 331,200 | ||
Fixed expenses | 264,960 | ||
Net operating income | $ | 66,240 | |
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