how would your error affect breakeven sales and operating income under the proposed sales commisiin plan

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Expert Solution

Effect of error on Breakeven Sales:

Break even sales are dependent upon 2 factors, these are as follows:

1. Contribution/Unit: If there is an error in Contribution per unit and due to which Contribution/unit increases, it would take your breakeven sales down to your should be breakeven sales. However if Contribution/Unit decreases, it would take your breakeven sales up to your should be breakeven sales.

2. Fixed Cost: If there is an error in Fixed Cost and due to which Fixed Cost increases, it would take your breakeven sales up to your should be breakeven sales. However if Fixed Cost decreases, it would take your breakeven sales down to your should be breakeven sales.

Still the net effect would only be assessible after considering the figures only.

Effect of error on Operating Income

Operating Income are dependent upon 2 factors, these are as follows:

1. Sales/Unit: If there is an error in Sales per unit and due to which Sales/unit increases, it would take your Operating Income up to your should be Operating Income. However if Sales/Unit decreases, it would take your Operating Income down to your should be Operating Income.

2. Cost: If there is an error in Cost and due to which Cost increases, it would take your Operating Income down to your should be Operating Income. However if Cost decreases, it would take your Operating Income up to your should be Operating Income.

Still the net effect would only be assessible after considering the figures only.

NOTE: THE NET EFFECT OF BOTH THE FACTORS MAY ALSO LEAD TO INCREASE OR DECREASE IN BREAK EVEN. ALTHOUGH IT IS DEPENDENT ON THE FIGURE AT ALL.

ekkarill92 answered 1 year ago

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