Chapter 21, Problem 21.1EI

To determine

Concept Introduction:

Break even sales are the sales made to recover all the costs incurred by the company. It is the point at which the company neither makes profit, nor incurs loss. It is the point which every company targets to reach even in the restricted environment, so that they would not have to incur any cost from their pockets.

1) As to how the error of considering personnel’s salaries and fixed selling cost could impact break-even sales and operating income under the proposed sales commission plan? Could this cause the president to reject the sales commission proposal?

2) Considering ethical responsibilities, is there a difference between: a) initially making an error and (b) subsequently failing to inform the controller?

3) Suppose you tell Matthew Barnhill of the error in your analysis. Why might the consequences not as bad as you fear? Should Barnhill take any responsibility for your error? What could Barnhill have done differently?

4) After considering all factors, should you inform Barnhill or simply keep quiet?