Spike Industries had a bad year in 2021, experiencing an operating loss for the first time. The company experienced sales of $2,220,000 from selling 185,000 units. The cost data can be found below: Fixed Su = $2,220,000 - 185,000 VC= $1,332,000 Cost of goods sold Selling expenses Administrative expenses Total $1,486,000 681,000 305,000 $2,268,000 - Variable (12-7.2) $866,000 356,000 110,000 $1,332,000 185,000 7.2 For 2022, management is considering changing the compensation of the sales force from fixed annual salaries (totaling $170,006) to total salaries of $50,000 plus a 6.25% commission on sales. $416,000 325,000 195,000 $936,000 220,000 G2 2/357,750 Round to two decimal places when needed. Requirement 1: If management adopts this change, what will be the company's new break-even point in units? Is this an increase or a decrease from their previous break-even point? BE u FC $936,000 A95,000 QMU - 201,480 New BEU CMU. TC -($936,000 - 120,006) $815,994- $4.05 $4.05 Requirement 2: Prepare a proof of the new break-even point you calculated in requirement 1. 201,480 X$12 = $2,417,760 BEU X Su = APS, 000 12,4 Requirement 3: If actual sales for 2022 are $2,900,000, what will be the company's margin of safety in dollars? As a ratio?
Spike Industries had a bad year in 2021, experiencing an operating loss for the first time. The company experienced sales of $2,220,000 from selling 185,000 units. The cost data can be found below: Fixed Su = $2,220,000 - 185,000 VC= $1,332,000 Cost of goods sold Selling expenses Administrative expenses Total $1,486,000 681,000 305,000 $2,268,000 - Variable (12-7.2) $866,000 356,000 110,000 $1,332,000 185,000 7.2 For 2022, management is considering changing the compensation of the sales force from fixed annual salaries (totaling $170,006) to total salaries of $50,000 plus a 6.25% commission on sales. $416,000 325,000 195,000 $936,000 220,000 G2 2/357,750 Round to two decimal places when needed. Requirement 1: If management adopts this change, what will be the company's new break-even point in units? Is this an increase or a decrease from their previous break-even point? BE u FC $936,000 A95,000 QMU - 201,480 New BEU CMU. TC -($936,000 - 120,006) $815,994- $4.05 $4.05 Requirement 2: Prepare a proof of the new break-even point you calculated in requirement 1. 201,480 X$12 = $2,417,760 BEU X Su = APS, 000 12,4 Requirement 3: If actual sales for 2022 are $2,900,000, what will be the company's margin of safety in dollars? As a ratio?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Spike Industries had a bad year in 2021, experiencing an operating loss for the first time. The company
experienced sales of $2,220,000 from selling 185,000 units. The cost data can be found below:
Variable
Fixed
S = 2.220,000
625
2,358,750
195,000
Su = $2,220,000 -112
185,000
Cost of goods sold
Selling expenses
VC₁ = $1,332,000 Administrative expenses
185,000 7.2
Total
$1,486,000
681,000
305,000
$2,268,000
еми
$866,000
356,000
110,000
$1,332,000
For 2022, management is considering changing the compensation of the sales force from fixed annual 2,75
salaries (totaling $170,006) to total salaries of $50,000 plus a 6.25% commission on sales.
-
$416,000
325,000
195,000
$936,000
Round to two decimal places when needed.
Requirement 1: If management adopts this change, what will be the company's new break-even point in
units? Is this an increase or a decrease from their previous break-even point?
BE u = FC
$936,000
A95,000
(12-7.2
New BEU
TC -($936,000 - 120,006) $815,994 - 201,480
сти
$4.05
$4.05
Requirement 2: Prepare a proof of the new break-even point you calculated in requirement 1.
BEU X S₁ = 201, 480 X$12 = $2,417,760
Requirement 3: If actual sales for 2022 are $2,900,000, what will be the company's margin of safety in
dollars? As a ratio?
Requirement 4: Do you recommend to Spike Industries that they proceed with the proposed changes?
Explain your position by referring to your calculations and detailing your thought process.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education