Question

Cascade Company estimated the following variable and fixed cost for the only product it produces:

	Variable Cost Per Unit	Fixed Cost
Direct Materials	$132.30	$ 0
Direct Labor	$115.30	$ 0
Factory Overhead	$24.50	$264,000
Sales Salaries and Commissions	$12.70	$245,000
Advertising	$0	$75,000
Travel	$0	$39,500
Misc. Selling Expenses	$6.70	$24,500
Office and Officer Salaries	$0	$220,000
Supplies	$6.30	$15,000
Misc. Administrative Expenses	$2.20	$17,000

1. Prepare an estimated Contribution Margin Income Statement for the year ended December 31, 2018. (6,000 units are to be produced and sold). Assume the estimated sales price will be $500 per unit. Include one category for variable cost and one category for fixed cost.

2. Compute the break-even point in units and sales dollars

3. Compute the break-even point in units and sales dollars assuming the changed facts below:

(The sales staff will now handle all of the advertising cost and their sales commission will be increased to 10% of every sales dollar. Remember, the sales price per unit is $500.)

(The sales staff will also have their fixed salaries decrease by $100,000.)

(All other facts will remain unchanged.)

4. Which alternative would you select assuming that Cascade will sell at least 5,000 units? Why?

Answer 1