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The company sells T-shirts with identical unit costs and selling prices. Shown below are the revenue and cost information: Unit Variable Data (per unit)
The company sells T-shirts with identical unit costs and selling prices. Shown below are the revenue and cost information: Unit Variable Data (per unit) Selling price Variable Cost Monthly Fixed Costs $80.00 Rent $140,000 $30.00 Salaries $200,000 Advertising $40,000 Other fixed costs $20,000 The company has no beginning or ending inventories. The company produced and sold 10,000 units last month. Required: a) Prepare the contribution format income statement for last month. (5 marks) b) Compute the breakeven sales in dollars. Compute the margin of safety percentage last month. c) Compute the degree of operating leverage. (5 marks) (3 marks) d) How many units should the company sell to achieve a target net operating income of $49,500? (3 marks) e) If the company plans to offer sales commission to salesperson and reduce the fixed salaries by 5%, it is estimated sales will increase by 300 units and net income will increase by $9,550. How much should be sales commission per unit? (5 marks) f) If the increase of sales by 500 units and net income increase by $9,550 can be achieved by price cut of $1 each and additional advertising, how much should the company increase the advertising costs? (5 marks)
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