1. Waco Printing Company specializes in printing banners on a high quality, nylo
ID: 2417677 • Letter: 1
Question
1. Waco Printing Company specializes in printing banners on a high quality, nylon material that can withstand extreme temperatures. The company pays sale personnel a small base salary plus a large commission on each banner sold to encourage a large sales volume.
The following is a summary of the revenue and cost data:
Per Banner
Selling Price $400.00
Variable Costs
Materials $180.00
Sales Commission 80.00
Fixed Costs
Rent $3,200
Advertising 75,000
Sales salaries 3,000
Refer to the original data. The company is considering paying the sales personnel an additional $10 commission for every banner sold above the breakeven point. If this incentive is implemented, what will be the net operating income when 650 banners are sold?
Explanation / Answer
Calculation of break even point Particulars in $ per banner Sales 400 Less : Variable cost - Material 180 - Sales Commission 80 Contribution per banner 140 Total Fixed cost 81200 Break-even point = Total fixed cost / contribution per banner Break-even point = 81200 / 140 = 580 banners Sales above breakeven point = 650 - 580 =70 banners Hence additional sales commission = 10 * 70 = $700 Calculation of Net operating Income Particulars In $ Sales (650*400) 260000 Less : Variable cost - Material (650*180) 117000 - Sales Commission (650*80) 52000 Less : Fixed Cost - Rent 3200 - Advertising 75000 - Sales Salaries 3000 Less : Additional sales commission 700 Net operating income 9100
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